Are these the 3 best dividend shares on the FTSE 100?

Dividend shares are a great way for me to get more out of my investments. Here are three dividend stocks I’d consider for my portfolio this month.

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In February, I’ve seen a lot of companies update how much they pay on their dividend shares. While some companies have had to reduce their dividend yield, others have increased it. So I’m checking which are the latest top dividend-paying companies in the UK.

My top picks for FTSE 100 dividend shares this month include Imperial Brands (LSE:IMB), Lloyds Banking Group (LSE:LLOY), and BT Group (LSE:BT.A).

Imperial Brands

One of the UK’s largest tobacco retailers, Imperial Brands boasts an impressive 8.1% dividend yield. Although the dividend is not well covered by earnings, the company has a reliable track record of making payments.

What’s more, the dividend is forecast to increase to 9.3% in the next three years.

Now, not everyone is a fan of tobacco companies so this might not be an option for you. But Imperial Brands is working hard to improve its image by branching out into vapes and similar products. What’s more, it is actively campaigning against vapes being marketed to young people.

I don’t have an opinion on the matter, so I’m happy to consider Imperial Brands as a good addition to my dividend portfolio.

My only concern is the relatively high level of debt the company is working with. With only £6.6bn in equity and £10bn debt, Imperial Brands has a rather concerning debt-to-equity (D/E) ratio of 152%.

Lloyds Banking Group

Lloyds Banking Group is one of the largest banking groups in the UK, currently sporting a 5.5% dividend yield. The UK banking sector is still going through a rocky period, with several high-street banks losing value in the past year.

But Lloyds stands out among the rest. 

In its recent full-year 2023 results, it revealed higher earnings per share (EPS) than expected. The Lloyds share price jumped 5% on the news, now trading at 45p up from 42p last week. HSBC, by comparison, is down 6% in the past week.

Dividend payments have been relatively consistent for the past three years, with the yield increasing from 2.9% to 5.5%. 

But with the UK economy still in recovery mode, analysts forecast declining earnings for Lloyds in the coming years. This could negatively affect the share price but it looks to me like dividend payments will remain stable, for now. If so, I would consider adding Lloyds to my portfolio.

BT Group

With a 7.2% yield, the UK’s leading telecoms company is a popular option for dividend returns. It has some significant changes planned for this year, with the UK moving to a fully digital telephone network.

Dividend payments ceased during the pandemic but were stable prior to 2020 and have recently resumed with relative consistency. The yield is not quite at the level it was pre-pandemic but it’s still higher than most FTSE listings.

BT’s future prospects rely heavily on how the digital upgrade pans out. The share price has been falling since a peak last December. Analysts now estimate it to be undervalued by almost 80%, so if things go well there could be a lot of room for growth.

BT is also operating with a high level of debt. With £20bn in debt and only £13.6bn in equity, its D/E ratio is 145%. I don’t think this is a serious risk just yet so I still think BT would make a good addition to my dividend portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings, Imperial Brands Plc, and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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