I think those on the hunt for healthy passive income streams could take a closer look at these FTSE 100 dividend stocks. Although returns to shareholders may fluctuate with earnings, the track records of these blue-chip companies suggests they’re in a good position to cope with whatever challenges they may face.
Going up in smoke?
Ethical investors look away now but, over the past four quarters, British American Tobacco (LSE:BATS) has returned 236.7p to shareholders by way of dividends. This implies an impressive yield of 7.6%.
The group has a long track record of increasing payouts too. By selling an addictive product that’s cheap to make, it’s able to generate huge amounts of surplus cash.
However, for health reasons, the company’s transitioning to making things other than cigarettes. This requires significant capital expenditure. Also, these so-called ‘reduced-risk products’ are more expensive to produce. Over the longer term, this could mean less cash for dividends.
But despite these challenges, the company increased its earnings per share in 2024. This suggests that reports of the death of the tobacco industry have been greatly exaggerated.
Raising the roof
Despite well-documented problems in the housing market, Taylor Wimpey (LSE:TW.) still declared a dividend of 9.46p in respect of its 2024 financial year. That’s a 10.2% increase on 2021. And it means the stock’s currently yielding 9%, the fourth-highest on the FTSE 100.
The company aims to return 7.5% of net assets, subject to a minimum of £250m, to shareholders each year. It’s able to do this as it has very little debt on its balance sheet.
However, the housebuilder’s payout could come under threat if interest rates don’t fall as anticipated. The availability of affordable mortgages is a key driver of housing market growth. Also, building cost inflation remains stubbornly higher than the general rate of price increases.
But the government’s planning reforms — and reliance on the construction sector to get the UK economy growing again — should help Taylor Wimpey maintain its dividend in the medium term. Analysts are expecting payouts of 9.4p (2025) and 9.5p (2026) over the next couple of years.
One for a rainy day?
Legal & General (LSE:LGEN) last cut its dividend in 2008. For 2024, it’s declared 21.36p a share. In cash terms, that’s 21.6% higher than in 2020. Coupled with a stagnant share price performance over the past five years, this has helped push the yield to 9.3%. The directors of the financial services group have pledged to increase this by 2% a year from 2025-2027.
But earnings (and its dividend) could be impacted by falling interest rates. This would make annuities less attractive to pensioners. Also, it carries over £200bn of equities on its balance sheet. Volatile markets could weaken its financial position.
However, the group has an enormous pipeline (£44bn) of pension funds that it’s looking to acquire. And its store of future profit from its insurance arm is currently worth more than the group’s market-cap. Also, the UK’s ageing population could boost the demand for retirement products.
For these reasons, although there are never any guarantees, its dividend looks secure for now.
