2022 dividend forecasts: Vodafone, National Grid, Rio Tinto

What can income investors expect in 2022? Roland Head takes a look at dividend forecasts for three of the biggest income stocks in the FTSE 100.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Various denominations of notes in a pile

Image source: Getty Images.

Today, I’m looking at the latest dividend forecasts for three of the most popular FTSE 100 income stocks. What can shareholders expect next year? Will payouts rise — or fall?

I’m going to start with telecoms heavyweight Vodafone (LSE: VOD), before moving on to utility stalwart National Grid (LSE: NG) and mining giant Rio Tinto (LSE: RIO).

Vodafone: a slow grower

Vodafone spends around €2.5bn each year on its dividend, which is currently set at €0.09 per share. This payout was covered by the group’s surplus cash flow of €3.1bn last year — a performance that’s expected to improve during the current year.

The problem for Vodafone is that growth is low, despite continued spending on network upgrades. CEO Nick Read hopes to break this cycle by streamlining the group’s operations and offering more advanced digital services.

City analysts seem to be cautiously optimistic. The latest consensus forecasts show adjusted earnings rising by 18% in 2022, even though sales are only expected to rise by 2.8%. This suggests profit margins could improve.

However, Vodafone’s high debt levels mean that dividend growth will take longer. Broker forecasts suggest the payout will rise by just 1% to 9.1 eurocents per share next year, leaving the yield unchanged at 6.8%. I’d buy the shares for income, but not for growth.

National Grid: 5% yield looks safe to me

National Grid doesn’t generate electricity in the UK, but this FTSE 100 stalwart still expects to profit from growing demand for renewable energy. NG recently acquired regional electricity network operator Western Power Distribution. In 2022, the group plans to sell some of its UK gas network assets.

These changes are important for shareholders because electricity demand is rising faster than gas. Increased exposure to electricity should improve earnings growth. In turn, this should strengthen support for National Grid’s dividend.

Of course, these changes aren’t without risk. When companies make a rapid series of big changes things don’t always go to plan. Costs can rise and the results aren’t always as good as expected.

Fortunately, NG doesn’t depend solely on its UK operations. The group generates about half its profits from its US utility businesses. This provides useful diversification, in my view.

City analysts expect National Grid’s dividend rise by 2% in 2022, to 50.3p. That gives the stock a forecast dividend yield of 5.3%. I’d buy the shares for my portfolio at this level.

Rio Tinto: dividend likely to fall

FTSE 100 miner Rio Tinto generates more than 80% of its profits from iron ore. And the group has benefited from a huge boom in demand since the pandemic struck last year.

Rio Tinto’s profits rose by 22% to $9.8bn in 2020. During the first half of 2021, underlying earnings rose by 156% to $12.2bn — more than in all of 2020.

As a result, broker forecasts suggest shareholders will receive a record dividend of $10.57 per share for 2021.

However, the iron ore price has fallen by 40% since the end of July, as demand has weakened. City analysts expect to see Rio’s profits fall by around 35% in 2022 as prices return to more normal levels.

Dividend forecasts reflect this. Rio’s 2022 payout is expected to fall by around 35% to $6.50 per share.

Although this still gives Rio a very attractive 2022 forecast yield of 10%, I think it’s worth remembering that mining is a boom-and-bust business. Profits are expected to fall again in 2023. I’m staying on the sidelines for now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended National Grid. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Is another stock market crash on the way?

The US stock market has already crashed in 2022, losing 25% of its value at its June low. However, UK…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A 6.2% FTSE 100 dividend stock I’d buy to boost my income

This FTSE 100 dividend stock offers a yield well above the index average. Here's why I'd buy it to supercharge…

Read more »

Abstract 3d arrows with rocket
Investing Articles

2 beaten down FTSE 100 shares that look ready for liftoff 

With the UK market showing strong signs of recovery, I am considering these two overlooked FTSE 100 shares for my…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

3 top UK shares for August 2022 and beyond

I've been buying top UK shares since late June such as these three companies that look attractive right now.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

FTSE 100 live: the Footsie closes on 7,500

The Footsie, like many other global markets, has been pretty volatile in recent months, but today it almost closed above…

Read more »

Woman using laptop and working from home
Investing Articles

High-dividend stocks! Should I buy Royal Mail’s shares for its 7.3% yield?

The Royal Mail share price carries a dividend yield twice as large as the average for UK shares. Does this…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

UK shares: should I buy this oil and gas infrastructure stock?

Jabran Khan is looking for the best UK shares for his holdings. Could this oil and gas infrastructure provider fit…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

This REIT could be the perfect stock to supercharge my passive income stream!

Jabran Khan is looking for stocks to boost his passive income through dividend payments. He identifies one REIT to help…

Read more »