Dividend forecasts have been scaled back as the year has gone on.
And what might have been a new record for FTSE 100 ordinary dividends in 2024 now looks like it won’t quite make it.
But, that shouldn’t take anything away from what a cracking dividend year it’s shaping up to be. Even if we don’t see a new high, we should still get close to the 2018 record.
It’s sobering to think that was before the pandemic. Back in early 2020, did anyone think the stock market could recover, and get back to paying out so much cash, so quickly? I didn’t.
Profit from it
So how should we make the most of it? I’m lining up the dividend stocks I most want to buy right now, based on forecasts.
Generally, I want good dividend yields that look like they’ll rise in the next few years. And, ideally, I want to see cover by earnings, from a company with solid cash flow.
I think these five will top my FTSE 100 want list in the New Year. Sources vary, so I’ve tried to average things out.
| Stock | 2023 yield | 2023 cover | 2024 yield | 2024 cover | 2025 yield | 2025 cover |
|---|---|---|---|---|---|---|
| Taylor Wimpey | 6.7% | 1.1x | 6.5% | 1.0x | 6.6% | 1.1x |
| Barclays | 5.3% | 3.2x | 6.2% | 3.1x | 7.2% | 3.3x |
| M&G | 9.1% | 0.7x | 9.3% | 1.0x | 9.6% | 1.2x |
| British American Tobacco | 10% | 0.4x | 10.3% | 1.4x | 10.8% | 1.4x |
| Legal & General | 7.8% | 0.9x | 8.3% | 1.2x | 8.8% | 1.2x |
Breaking rules
Right away, we can see I’ve picked a stock that doesn’t hit my target of rising yields. It’s Taylor Wimpey.
But that’s fine, because when I choose my criteria for a stock search, they’re not hard and fast rules. No, they just give me a first hint, and then I think about each stock indivdually.
The property market is in the dumps, but I can only see strong long-term demand. And if the firm can keep up such good dividends while covering them (just) in such hard times, that’s great. I can overlook the obvious short-term risk.
For financial stocks like M&G and Legal & General, earnings-based metrics aren’t always the best to use. Big rising dividends, and strong potential long-term cash flow, do the trick for me.
Best of the bunch
For me, Barclays is the clear pick of the bunch here. Rising earnings forecasts, growing dividends, and very strong cover make it a stand-out.
Now, why my three financial picks look so good will be partly down to the risk they face. Plenty of investors will want to stay out until inflation and interest rates look better.
And I can’t fault that — 2024 might prove to be a tougher year for them than I hope.
Diversification?
People have been calling the end of the tobacco market for year. But we wouldn’t think so going by British American Tobacco’s stunning forecasts.
You might note that I’m not well diversified here, with three financial stocks. But when my favourite sector looks so good, I’ll take that risk too.
