Are these the 3 most solid yields on the FTSE 100?

Sometimes the biggest dividend isn’t the most beautiful, says Harvey Jones.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When choosing income stocks simply selecting one with the highest yield isn’t enough, the payout also has to be sustainable. The following three companies aren’t the juiciest yielders on the FTSE 100, but the dividends should keep flowing year after year.

Imperial stretch

Tobacco giant Imperial Brands Group (LSE: IMB) currently yields a steady 3.53%, slightly below the FTSE 100 average of 3.71%. That’s actually more impressive than it seems given that the stock has also delivered punchy share price growth of 30% over the past year, and a higher share price inevitably squeezes the yield. Over five years the stock is up 101%, which shows that management has worked hard to ensure the yield keeps up.

And so it has: dividends at Imperial Brands have increased at an annual compound rate of 12% since 2008, with the company consistently increasing its dividend per share by over 10% each year, including the last one. That really does make it one of the most solid yields on the index today, in true tobacco company style. Inevitably, it isn’t cheap, trading at 18.99 times earnings but that’s a minor concern given its satisfying income stream.

National treasure

Transmissions giant National Grid (LSE: NG) has also had an impressive 12 months, its share price up 27%. The stock nonetheless yields a solid 4.03% although future growth is likely to be less electric than at Imperial Brands. Last year management raised the dividend by just 1.1% to 43.34p. It has committed to raise it by at least RPI for the foreseeable future: in July that figure stood at 1.9%, notably higher than the consumer price index figure of 0.6%.

National Grid remains my favourite utility play. Anybody who’s dissatisfied with their bank’s savings rate (just about everybody) should consider this as their first step into higher-yielding stocks: the share price may be volatile but the underlying business is as secure as it gets, given its duty to run essential gas and electricity structure across the UK and US. The price is slightly high at 16.93 times earnings and regulators may come under political pressure to tighten margins every time its posts a strong set of profits, but these are minor quibbles.

United stands

It’s been a good year for safe haven stocks with water business United Utilities Group (LSE: UU) gushing 18% share price growth in that time. Yet the yield remains a far from watery 3.92%, supplying much-needed relief to parched investors. The company’s management did have designs on ‘electrifying’ the business by purchasing regional power utilities but has sensibly backtracked after running up debts for little reward. Now it’s sticking to what it knows best, promising investors RPI-linked dividend growth for as long as human beings need water.

United Utilities isn’t the raciest investment around, earnings per share are expected to fall 5% in the year to March 2017, and creep up by 3% the year afterwards. At 20.48 times earnings it isn’t even cheap. But the yield looks solid and is likely to grow, which is more than can be said about today’s savings rates.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »