Dividends can contribute massively to long-term investment returns, especially if they’re reinvested, and high-yielding shares have boosted many a portfolio. But which of the FTSE 100‘s stars are forecast to provide the biggest yields this year? It depends on who you ask and when, but here are the top five at the time of writing:
Direct Line (LSE: DLG), priced at 320p, is forecast to pay 32p per share this year, which would provide a massive yield of 10%. That’s not likely to be covered by earnings, but is part of Direct Line’s strategy of returning cash to shareholders through special dividends, so we shouldn’t bank on getting it very year.
But even without that, the insurer’s regular dividends are still expected to provide a 5.5% yield in 2016, so we’re looking at potentially lucrative income here.
Second place goes to Admiral (LSE: ADM) and its predicted yield of 6.1% on shares priced at 1,503p. That’s based on Admiral’s policy of offering a regular yield of around 3.5% and topping it up with special dividends, and with the total for 2015 likely to be barely covered by earnings, we shouldn’t expect such high yields as a given — though Admiral has kept them going so far.
Along with the rest of the housebuilding sector, Taylor Wimpey (LSE: TW) has been soaring, and is up 275% over the past five years to 149p — the FTSE 100 has managed an embarrassing 19% by comparison. But even after that growth, it’s also one of our best dividend payers too, with yields of 6.1% and 6.6% on the cards for the next two years. With more strong earnings growth forecast, and a P/E dropping to under nine on 2016 expectations, how can the shares not be cheap?
We need to get down to fourth place before we find a traditional safe income stock, and it’s energy supplier SSE (LSE: SSE) with its forecast yield of 5.9% for the year just about to end, on shares priced at 1,462p — and there’s 6.1% and 6.2% penciled in for the next two years. There will be some tentative fears that the dividend could be cut after Centrica did just that, but SSE is pretty certain to remain a steady long-term cash provider.
And then we come to BP (LSE: BP), whose shares are still down 34% to 419p over the past five years after the big crash following the Gulf of Mexico disaster. The oil price slump hasn’t helped either, and BP along with the other big players has been shelving some exploration plans and striving to cut costs.
But its dividend has come bouncing back and is set to yield 5.8% this year. That wouldn’t be covered by earnings, but an EPS rise forecast for 2016 should re-establish cover satisfactorily.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.