I think now’s a great time to hunt for dividend stocks on the FTSE 100. This is because many UK blue-chip shares now carry jaw-dropping yields (based on City dividend forecasts).
Vodafone Group (LSE:VOD) and HSBC Holdings (LSE:HSBA) are a couple of income shares on my own shopping list. The dividend yields on these popular income shares make mincemeat of the forward average of 3.9% for Footsie shares.
Here’s why I’d buy them for my shares portfolio this month.
HSBC Holdings
Asia-focused HSBC faces near-term turbulence as China’s economy splutters. Yet I don’t believe this will impact the bank’s ability to pay big dividends in 2024, and neither do City forecasters. This is thanks to the firm’s rock-solid balance sheet.
Indeed, even as earnings for the third quarter missed forecasts, the Footsie bank still elected to launch a whopping $3bn share buyback scheme. It can afford to do this. HSBC’s CET1 capital ratio stood at a meaty 14.9% as of September, up 0.2% from the prior quarter.
On the dividend front, a total reward of 65 US cents for 2023 is predicted by analysts. This means the company carries a mighty 8.5% dividend yield.
Predictions of strong profits growth — the bottom line is tipped to swell 70% year on year — also lead analysts to tip more big dividends. It also results in healthy dividend cover of 2 times.
I expect HSBC to be an impressive dividend payer for years to come. Soaring demand for financial products in its emerging markets should give it the firepower to return tonnes of cash to its shareholders.
Vodafone Group
Telecoms giant Vodafone offers even larger dividend yields than HSBC over the short term. For the financial years to March 2024 and 2025 these sit at 10.1% and 9.3% respectively.
These falling yields reflect analyst expectations that shareholder payouts will drop. The usual annual dividend of 9 euro cents is tipped to be maintained this year. But a decline to 8 cents is anticipated for financial 2025.
Some analysts are tipping even larger dividend reductions. So why would I buy Vodafone shares then, you ask? Well even if payout estimates were to be slashed by 50%, the mobile operator’s yields would still beat those of most other FTSE 100 shares. This year’s yield even tops 5%.
I’m confident the firm’s excellent cash generation will help it to pay dividends well above these levels, even despite near-term profits choppiness. It’s also recently sold its Spanish operations for a cool €5bn to give its balance sheet an extra boost. Falling net debt is also a good sign (though this still stood at a hefty €36.2bn as of September).
On balance, I think now could be a good time to invest in Vodafone. Not only should it continue paying market-beating dividends, but an ambitious transformation plan, and improved trading in its core German marketplace, suggest its share price could start rising again.
