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FTSE 100 dividends to hit record high of £93.7bn in 2019. Time to go shopping?

We here at The Motley Fool aren’t shy when it comes to banging the drum for the FTSE 100 and its beautiful dividend stocks.

Buy-to-let? Too much regulation and rising costs. Cash accounts, then? Not with those painfully-low interest rates. Bitcoin? Much, much too volatile. Gold? A useful asset in tense times like these but an asset that pays no dividend.

When it comes to planning where to stash your savings there’s only one place to invest, at least in this Fool’s opinion, and that is in the stock market. In recent weeks I’ve reported on the all-time highs that global dividends have struck this year, and in recent hours fresh forecasts have emerged that suggest shareholder rewards should keep sailing higher in 2019, or at least for the FTSE 100.

Ring the bells

According to investment services provider AJ Bell total dividend payments on Britain’s elite index will rise to around £90bn in the current year before surging again to new fresh tops in 2019.

Russ Mould, investment director at AJ Bell, commented that “dividends paid out by the UK’s blue-chip index are forecast to hit a new all-time high of £93.7bn next year and as share prices have fallen this has pushed up the forecast dividend yield, providing a source of support for UK stocks amongst the maelstrom of political uncertainty.”

At current prices next year’s Footsie yield equates to a gigantic 4.9%, and putting this into context, Mould noted that such a yield “looks extremely tempting compared to the Bank of England’s 0.75% base rate for cash and the 1.23% yield on the benchmark UK ten-year Gilt.

Homebuilders are the biggest yielders

The housebuilders dominate the list of top yielders for next year, locking out three of the top four spaces on AJ Bell’s list. Taylor Wimpey leads the race with its monumental yield of 13.1%, followed by Persimmon with 11.8% and Barratt Developments with 9.6%.

Commenting on the pre-eminence of these on the list, Mould said that “the presence of three housebuilders in the top ten is testimony to the size of their capital return programmes, but it may also hint at investor scepticism that the industry can maintain its current lofty levels of profitability without the benefit of Government assistance, via the Help to Buy and Lifetime ISA schemes.”

But the investment director struck a positive tone on the robustness of these yields, commenting that “Help to Buy has been extended again so it is possible that these payments are well underpinned, if unwittingly, by the taxpayer.” He added that “all three… have net cash balance sheets to reassure shareholders.”

The rest of the top 10 list was made up of the usual suspects:

  1. Taylor Wimpey (13.1%)
  2. Evraz (12.1%)
  3. Persimmon (11.8%)
  4. Barratt Developments (9.6%)
  5. Standard Life Aberdeen (9.6%)
  6. Direct Line Insurance Group (8.9%)
  7. Imperial Brands (8.7%)
  8. Aviva (8.6%)
  9. Centrica (8.4%)
  10. Vodafone Group (8.3%)

Invest wisely

A word of warning, though: AJ Bell’s calculations show that projected  FTSE 100 dividends for 2019 are covered just 1.79 times, with the figure for the 10 biggest yielders standing at 1.21 times. This is below the widely-accepted safety benchmark of 2 times but does represent a four-year high.

That meagre dividend coverage makes it all the more important to properly do your research before investing in the Footsie. But fortunately there’s a wealth of information out there to help you to make the right investment decisions.

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Royston Wild owns shares of Barratt Developments and Taylor Wimpey. The Motley Fool UK has recommended Imperial Brands and Standard Life Aberdeen. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.