AJ Bell has released its latest Dividend Dashboard update, examining UK dividend forecasts. As 2022 progresses, dividend prospects are looking better and better.
FTSE 100 companies look set to hand over around £85bn this year. The all-time record of £85.2bn was paid in 2018, just before Covid arrived and put a damper on dividends.
But we’re already back close to that figure. And I wouldn’t be at all surprised to see it eclipsed in 2022, bringing us another new record.
Forecasts indicate an overall FTSE 100 dividend yield of 4.2%. Cover by earnings seems to be improving too. The consensus suggests around two times, or maybe even better. Which dividend forecasts make me want to buy right now?
Best buys?
Persimmon is up among the big yields, forecast at 12%. That includes special dividends to redistribute excess capital, so yields like that might not last much longer. But big housebuilder yields right now are partly due to falling share prices, as rising interest rates are making mortgages more expensive.
We have just learned that house prices climbed 11% in a year, though. Still, there are signs of slowing, and share prices could be in for further falls. But I might invest a bit more in the sector.
Rather than seeking the biggest yields around, I reckon this is a great time to buy companies with long-term cash generation histories. I think that just has to include the banks, which have been reporting strong first-half results in August.
Banking rebound?
Lloyds, Barclays, and NatWest are all expected to pay dividends yielding 5% or better in 2022. Cover by earnings looks healthy across the sector, as higher interest rates are boosting lending margins. Looking further ahead, forecasts suggest further dividend rises in the next two years as earnings continue to strengthen.
There are also some stocks that have been delivering dependable progressive dividends for years. And if I can buy into some of them when their share prices are a bit depressed, I’d hope to lock in even better yields for the years to come.
Long-term favourites
The list includes National Grid, which is now on a forecast 5% dividend yield. The company has traditionally enjoyed a clear earnings outlook and hasn’t needed much cover. But at the moment, forecast earnings would cover the dividend around 1.7 times, which I think is strong for National Grid.
And those two perpetual high-yielders, British American Tobacco and Imperial Brands, look set to deliver solid cash this year. Imperial Brands, in particular, is on a forecast yield of 7.5%. And it’s set to break 8% based on 2024 forecasts.
Will it happen?
It’s possible that forecasters are being a bit optimistic, and these big dividends might not happen. They are, after all, often slow to react to external factors. In particular, any extended global economic weakness could put operating costs up for a lot of companies. And higher interest rates are good for banks, but only when enough customers can afford to borrow.
But if these predictions come good, 2022 could be a cracking year for UK dividends. And I want to invest as much as I can while I think dividend shares are cheap.
