Several FTSE 100 companies are still paying chunky shareholder dividends, despite recent strength in the stock market.
Dividends are a great way for investors to harvest a second income. The regular money can be reinvested back into shares to compound gains and aim for an even bigger income later. Or it can be drawn and used – the choice is ours!
These Footsie firms are often stable, well-established businesses that have demonstrated their staying power over a number of years.
However, this happy situation – with businesses trading well and paying chunky dividends — probably won’t last. Already the Bank of England, together with other central banks, is talking about lower interest rates ahead.
Are the good times coming?
The economy is strengthening and, to me, that means we may see buoyant share prices ahead.
When stocks rise, dividend yields will likely fall. So I’m not waiting around. Instead, I’m researching and buying quality stocks for their dividend income right now.
For example, international home improvement products retailer Kingfisher (LSE: KGF) expects to pay a dividend of around 11.9p per share for the trading year to January 2025. With the share price near 233p (21 March), the forward-looking yield is therefore just above 5%.
I’d describe that level of pay-out as chunky. But if the economy’s improving, there’s a good chance of further business progress ahead. People-traffic through the firm’s doors at B&Q and Screwfix could pick up in the coming months. As it could for the company’s several other branded outlets across Europe.
We could see higher earnings, a rising share price and increasing dividends in the years ahead. However, positive outcomes are never certain in the world of businesses, stocks and shares.
Retail operations are known for being notoriously cyclical and vulnerable to the ups and downs of the wider economy. So there’s always a risk of general economic shocks derailing operational progress.
Nevertheless, City analysts are mildly optimistic and have pencilled in modest single-digit percentage advances for earnings and the dividend this year.
Building a diversified portfolio
On balance, I see the stock as worth deeper research with a view to buying some of the shares to hold for dividend income.
However, it’s not the only company I’d consider right now. Energy utility company National Grid is worth a look with its anticipated dividend yield running above 5%. So is financial services provider Legal & General with its whopping forward-looking yield of almost 9%.
Another I’d be keen to research now is investment management company Schroders. 2024’s dividend looks set to come in at about 21.9p per share, suggesting a potential yield of almost 5.8% with the share price near 379p.
None of these payments are guaranteed, of course. Directors can set or cut dividends at will, and they do so depending on the strength of underlying trading in each business.
Nevertheless, I’d research these stock opportunities now. My aim would be to embrace the risks and build a diversified portfolio of stocks with big dividend-paying potential.
