When we look for FTSE 100 dividend stocks to build up a lifetime of income, big dividend yields matter most, right?
Well, dividends are never guaranteed. A big yield right now can help offset the pain of cuts later though. But over the long term, steady progressive raises can make all the difference.
Oh, and cover by earnings is important too. A big yield today might not last long if the company isn’t bringing in the earnings to pay for it.
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We should combine all these things to find the dividend stocks we want to buy now. And today, I’m looking at one aspect — forecast rises.
Best forecast?
If you had to guess at which FTSE 100 companies analysts think will lift their dividends by the biggest percentage in the next few years, what might you go for?
I’ll start with two that paid no dividends last year, Rolls-Royce Holdings and International Consolidated Airlines. Both have been through tough times due to the Covid impact on the aviation business.
Both share prices are down over five years, and both are expected to resume dividends this year, with solid growth set to follow.
It’s a bit early to make much sense of yields, which should still be modest. But they could be the start of something good.
Wobble to come?
Each has its own risks. For Rolls, I reckon the biggest danger might be a share price correction after the stock has soared.
And International Consolidated Airlines is in a volatile business, affected big-time by oil prices. The forward price-to-earnings (P/E) ratio is only about four though, which I think looks cheap.
But they’ve both paid decent dividends in the past, and that points to one thing to consider when we look for future cash. That’s finding companies that are returning to health.
Back to bricks
One of the biggest anticipated dividend rises, at least in total cash terms, can be found at Vistry Group (LSE: VTY), the housebuilder formerly known as Bovis Homes.
And for my money, that’s a business sector any dividend investor really should consider as a way to generate long-term income.
The share price has recovered well since 2022. But even with that, forecasters still put their expected 2024 yield at 3.6%. That would then rise to 5.4% in 2025, and 6.3% by 2026.
In fact, I like the look of pretty much all of the sector right now for cash generation. We see a predicted yield of 5.8% from Taylor Wimpey, and 5.1% from Barrett Developments, for example.
Cash cows
Vistry has also been on a share buyback spree, returning more capital to shareholders that way. We still face uncertainty while mortgage rates remain high though. So I might expect a bit of share price volatility to come.
Yet this sector shows another avenue through which I seek long-term dividends. If I look at a business and I’m convinced I see a cash cow that could deliver for decades to come, I’ll consider buying it even when others might see it as down and out. Especially then, in fact.
Just think of the effective yields investors who bought near the bottom would see today on the prices they paid back then.
