These FTSE 100 stocks offer dividend yields that are far above the current 3.7% index average.
Are they slam-dunk buys? Or should I avoid these high dividend shares at all costs?
Barclays
The Barclays (LSE: BARC) share price has fallen by almost a fifth since the turn of 2022. It’s a drop that reflects the threat of recession to its trading operations.
This drop has naturally given a boost to Barclays’ dividend yields. The bank yields 5% for this year on forecasts of a 7.7p per share dividend. And the dial moves to 5.9% for 2023 as analysts tip a 9.2p reward.
In other good news, these projected dividends are well covered by predicted earnings, too. Dividend cover ranges between 3.2 times and 3.8 times for the next two years.
The coming storm
I still worry about Barclays’ ability to pay big dividends over the short-to-medium term, however.
The bank is benefitting from rising interest rates in the US and UK. This is allowing it to print bigger profits from its lending activities.
But Barclays’ earnings projections have been trimmed more recently, pulling down dividend cover. I think the banks are in danger of further forecast downgrades, too, as soaring inflation batters the global economy.
Barclays itself has put aside £341m to cover potential loan losses, it announced on Thursday. This follows Lloyds’ decision to swallow a loan impairment charge of £377m a day earlier.
Investors should be prepared for further charges that could damage profits and, by extension, cause dividend forecasts to miss their target.
The IMF’s decision to trim its economic growth estimates this week — and its prediction that the UK will grow slowest among G7 nations in 2023 — is a reminder of the perils facing Britain’s banks.
ITV
Commercial broadcasters like are, of course, also highly sensitive to broader economic conditions. This is why FTSE 100 dividend stock ITV (LSE: ITV) has lost 34% of its value in the year to date.
Reflecting the growing strain on the advertising industry, ITV said on Thursday that its ad revenues were likely to be down 9% and 18% year-on-year in July and September respectively. With inflation still soaring, ad-related turnover could continue crumbling too.
Yet despite this threat, I’d happily buy ITV shares today. Streamers like Netflix that operate on subscriptions might be struggling right now. But free-to-air platforms like ITV Hub continue to thrive. ITV’s own service delivered 814m streams in the first half of 2022, up 8%.
This bodes well as the company prepares to launch its new ITVX service later this year.
A top dividend stock
I’d also buy ITV because of its strong credentials as a dividend stock. The company is expected to pay dividends of 5.2p and 5.3p per share in 2022 and 2023 respectively. These projections provide a dividend yield of 7.2% and 7.4%.
Encouragingly, dividend cover for the next couple of years ranges between 2.2 times and 2 times. But even if the actual payments fail to live up to expectations, I think ITV’s dividends will still comfortably beat those of most other FTSE 100 shares.
