I think these FTSE 100 shares will continue to pay enormous dividends despite fierce macroeconomic headwinds. Here’s why I’d buy them today.
DS Smith
Dividend yield for this year: 6.5%
I already own shares in DS Smith (LSE:SMDS). And following recent heavy share price weakness I’m tempted to increase my holding in the packaging firm. Today it offers great value for money, I feel.
The company now trades on a forward price-to-earnings (P/E) ratio of 7.7 times. In addition, its dividend yield for 2023 smashes the 3.7% average for FTSE shares.
Falling retail spending is hitting unit sales at the box maker and pushing its share price lower. Volumes dropped 5.8% in the year to April and may remain under pressure if inflation stays high and the world economy continues to be weak.
Yet right now DS Smith remains on course to pay big dividends. Robust pricing mean sales and profits are still growing strongly. This — along with the benefits brought by ongoing cost-cutting — meant the firm hiked last years annual payout 20% year on year. And City analysts are expecting shareholder payouts to keep growing over the next few years at least.
Encouragingly this year’s dividend forecast is well covered by expected earnings, too. Cover sits bang on the safety benchmark of 2 times, providing a wide margin of safety for investors.
I plan to own DS Smith shares for years. I expect demand for its boxes to grow steadily thanks to growth in the e-commerce and food retail markets.
Glencore
Dividend yield for this year: 8.4%
Admittedly dividend cover at mining giant Glencore (LSE:GLEN) is far weaker. For this year the expected payout is covered just 1.6 times by expected earnings.
An uncertain outlook for the global economy means this is far from ideal. Should aggressive interest rate hikes dampen commodities demand then earnings could fall way short of forecasts.
But Glencore has a big advantage — its low-debt balance sheet. Significant debt cuts gave it the strength to launch a $1.5bn share buyback programme earlier this year. It could allow it to pay huge dividends in 2023 too even if profits disappoint.
Ongoing support from China’s central bank should help support earnings across the mining sector. Last month it lowered interest rates and said future monetary policy would be introduced in a “precise and forceful manner” to support economic growth.
Glencore is a share I’d buy to hold for the long haul. Themes like the green energy transition and rapid emerging market urbanisation mean resources demand looks set to climb over the next decade.
As a major commodities producer and marketer Glencore is well placed to capitalise on this theme. I don’t think these qualities are reflected by the company’s rock-bottom forward P/E ratio of 7.6 times.
