With the FTSE 100 up 12% so far in 2025, we’re not seeing quite the same dividend yields from the top income stocks that we’ve had in the past.
There might not be any 10%-plus ones to be had in the top index these days. But Legal & General (LSE: LGEN) still offers a fat forecast 8.4%. And we have first-half results coming on 6 August. If they’re good, might that push the share price up and lower the prospective dividend yield? Hmm, maybe we should consider buying before that can happen?
The insurance and asset management business is a cyclical one. And there are growing suggestions it might be near the top of the current cycle.
Dividend record
But Legal & General has a great track record. It hasn’t cut its dividend since 2009, following the 2008 financial crisis. Since then it’s risen every year.
The stock valuation might look a bit high. It has a forecast price-to-earnings (P/E) of 10.5 for 2025. But the historic P/E for 2024 is up at a huge 80. The current year depends very much on a seriously big jump in earnings. And if it comes in slightly off, the share price could take a hit.
Dividends look set to grow by only 2% a year now. That’s below current inflation, and means a fall in real terms, if not in actual pennies. I reckon this sector is for investors with a very long time horizon. And those who have one, might do well to consider buying.
Oil dividends
The massive 10% dividend yield predicted for Harbour Energy (LSE: HBR) also looks tempting. Part of the big percentage is down to a 46% share price fall in the past five years, mind. And, well, we’ve had all that talk of hydrocarbon energy reaching the end of the road.
The world seems to be pumping as usual since Donald Trump returned to power. But it has to stop some time, doesn’t it?
In the shorter term, the forward valuation looks attractive with a P/E of around 6.5. But I see one potential problem.
Earnings wobble ahead?
Analysts expect a couple of years of decent earnings per share, but followed by a decline of around 35% between 2026 and 2027. The dividend would be barely covered if that happend. And does it make the forecast P/E for 2027 of nearly 10 look a bit too hot?
It’s still below the valuations for BP and Shell. But I’d rate the much smaller Harbour Energy as carrying more risk. And with a fair bit more potential volatility, as it’s had in the past. Still, investors have been getting back on board. And the share price is up 40% since a 52-week low in May.
Smaller oil companies like Harbour Energy are not for me. In this case, it means balancing the dividend — which isn’t guaranteed — against the five-year price fall.
But for those who don’t so much mind the volatility, that big dividend might make it a tempting consideration. First-half results are due on 7 August.
