Some FTSE 100 dividend shares are offering bumper yields right now. And it might seem like a no-brainer decision to load up and secure some long-term passive income.
But why isn’t everyone buying them? That would push the share prices up, and so lower the dividend yields. The fact that that’s not happening suggests the market sees problems with the big yielders.
Which shares am I talking about? Based on forecasts, different sources might rank them a little differently. But the following table shows the FTSE 100’s five biggest dividend yielders at the time of writing.
| Company | Recent price | 12-month change | Forecast yield |
| Persimmon | 1,460p | -43% | 18% |
| M&G | 205p | -4% | 9.6% |
| Vodafone | 91p | -24% | 8.8% |
| Barratt Developments | 461p | -32% | 8.7% |
| Rio Tinto | 6,204p | +15% | 8.4% |
Coming up behind
Not far behind come Taylor Wimpey, Legal & General, Phoenix Group Holdings and abrdn.
I’m seeing a theme here. Housebuilders and financial shares figure among today’s biggest dividend payers. And those two sectors are under pressure at the moment.
The yields aren’t high simply because the dividends have been growing year after year. No, yields are often boosted by falling share prices, as we can see with most in the table.
Cuts?
That means markets are fearing dividend cuts over the next 12 months or so. These are only forecast yields anyway, and analysts doing the forecasting are usually among the last to turn bearish on dividends.
Does that mean we should expect the worst and steer clear of these high-yielding stocks? Not a bit of it, I feel, and I intend to do the exact opposite.
Forecasts
I do think these dividend forecasts are optimistic right now, especially with Persimmon forecasts still including the effect of past special dividends. But, as it usually does, I think the market has panicked and oversold.
It happens all the time. If something looks good, big investors will often buy heavily and push it up too far. And when a sector falls on hard times, they’ll dump all they have and depress prices too much.
Look at what happened during the Covid crash. The market dumped everything as if the shares themselves were infected. And long-term investors were able to hoover up bargains galore.
Verdict
What would I do? Would I buy the top five and hope for the best? Or maybe the top 10? Not necessarily as I’d need to investigate more closely. But the biggest yields give me something to start from.
Right now, I like the look of housebuilder dividends. The property market seems set for a bit of a crunch. But the UK has been pained by housing shortages for decades, and I don’t see that ending.
I have a similar feel for financial stocks too. High inflation and recession will surely harm them in the short term. But I think they could rebound when the economy gets back on track. And when that happens, I intend to be holding more housebuilders and financial stocks.
