Should You Invest In These Dividend Monsters: BAE Systems plc, Royal Dutch Shell Plc And United Utilities Group PLC?

Today I am examining the investment prospects of three FTSE 100 stocks boasting exceptional dividend yields.

BAE Systems

Supported by its formidable balance sheet, weapons builder BAE Systems (LSE: BA) has long been a strong dividend selection even in times of severe earnings turbulence. The London business has raised the payment at a compound annual growth rate of 4% during the past five years, even though earnings have slipped three times during the period, culminating in 2014’s payout of 20.5p per share.

And I believe that BAE Systems should continue to shell out increasingly-appetising rewards looking ahead, a view shared by the City’s number crunchers. Indeed, a payment of 20.8p is currently expected in 2015, producing a chunky 4.2% yield. And this readout rises to 4.3% next year due to projections of a 21.6p payment.

With the economies of key Western customers firmly on the mend, previous military spending constraints are expected to ease and drive sales at the likes of BAE Systems higher again, pushing earnings firmly higher and bolstering the company’s meaty cash pile further.

And with the firm’s weighty capital reserves also bolstering its R&D department — BAE Systems hoovered up Eclipse Electronic Systems of the US just this week — the business looks set to remain at the forefront of defence technology, and consequently a key supplier for governments the world over, for some time to come.

Royal Dutch Shell

The defence sector is considered a stronghold for dividend hunters as the decades-old arms race helps provide terrific earnings viability. But while rising energy demand also made oil plays such as Shell (LSE: RDSB) (NYSE: RDS-B.US) a solid payout picks due to their similarly defensive nature, I believe that a backdrop of surging global production puts this reputation in severe jeopardy.

The City does not expect an environment of depressed crude prices to hammer Shell’s dividend policy in the near future, however. A payment of 190 US cents is currently pencilled in for 2015, up from 188 cents last year, and which is expected to rise to 191 cents in 2016. Such payouts create a market-mashing yield of 6.4% through to the close of next year.

Still, this predicted payout growth marks a huge slowdown from that of previous years, and illustrates the rising pressure on the oil producer’s balance sheet. Shell has already taken the hatchet to capex spend and is selling off projects at a breakneck rate to shore up its capital position. So with forecast earnings of 202 US cents for this year actually outstripping the projected dividend, and a worsening supply/demand balance set to cast a prolonged shadow on the bottom line further out, I reckon the oil giant could become as a huge disappointment to dividend hunters.

United Utilities Group

Like Shell, I believe that United Utilities (LSE: UU) is also a perilous selection for income chasers, this time due to the effect of ongoing regulatory pressure. Like its peers in the energy supply business, water providers like United Utilities are facing increasing pressure to cut what they charge British households.

Indeed, governing body Ofwat has repeatedly flung charge plans back in the face of the industry’s major players, and is seeking a gradual overhaul of the sector in a bid to improve the public’s trust that they are not being ripped off. Needless to say such measures could create a huge shockwave for the profit performance of United Utilities and its peers, and in turn the size of future dividend increases.

The City currently expects the Warrington firm to keep dividends chugging higher, however, and a payout of 38.5p per share is currently slated for the 12 months concluding March 2016, up from 37.7p last year and creating a yield of 4%. And a forecast payment of 39.4p for the following year nudges the yield to 4.1%. But in my opinion such numbers are speculative at best given the massive changes Ofwat is planning to make in the more immediate term.

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Royston Wild 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.