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FTSE 100 dividends are set to hit a record high in 2019!

2018 may have disappointed growth-wise, but if you love dividends, it has been a dream. Investors have enjoyed a global dividend bonanza and there is more on the way in 2019.

That is massive

Shareholder payouts on the UK’s benchmark FTSE 100 index look set to reach a record high £93.7bn, according to new research from AJ Bell. That is a huge figure so I will repeat it: £93.7bn!

It equates to a whopping average dividend yield of 4.9% based on current share prices, which destroys the Bank of England’s 0.75% base rate and the 1.23% yield on UK 10-year gilts. It is an impressive return amid current political and economic uncertainty.

Autumn storms

AJ Bell investment director Russ Mould said these cracking yields are partly down to the autumn stock market sell-off. Yields are calculated by dividing the dividend by the share price, so when stock prices fall dividends rise.

Housebuilder Taylor Wimpey is down 34% this year, as fears over Brexit and the future of the Help to Buy scheme cast a shadow, but that has lifted its 2019 forecast yield to an amazing 13.1%, the highest on the index. That is an incredible return from a blue-chip with a market cap of more £4bn that Peter Stephens would buy and hold for a decade.

2019 dividend heroes

 

Dividend yield 2019e

Earnings cover 2019e

Taylor Wimpey

13.1%

1.19x

Evraz

12.1%

1.09x

Persimmon

11.8%

1.20x

Barratt Developments

9.6%

1.51x

Standard Life Aberdeen

9.6%

1.01x

Direct Line

8.9%

1.10x

Imperial Brands

8.7%

1.36x

Aviva

8.6%

1.84x

Centrica

8.4%

1.09x

Vodafone

8.3%

0.75x

Average

 

1.21 x

Source: Company accounts, Digital Look, analysts’ consensus forecasts

The list of top 10 yielders includes two other housebuilders, Persimmon, which is forecast to yield 11.9% next year, and Barratt Developments, with 9.6%. All three run generous capital return programmes and have the added security of the Government recently confirming that it will extend its Help to Buy equity loan scheme from 2021 to 2023. That should help maintain sales, even if it will be restricted to first-time buyers purchasing newly built homes.

Coal and steel miner Evraz should yield 12.1% next year, and that’s despite its share price actually rising 44% over one year and a mighty 690% over three years. If you are tempted to buy it, you’d better read this first.

Take cover

Dividend payouts are not guaranteed and Mould expressed concerns over Standard Life Aberdeen as forecasts suggest its long streak of dividend increases is under threat, and Vodafone, where the shareholder payout is not expected to grow for the first time in two decades.

Ideally, investors like payouts to be covered twice by earnings as a safety margin, but the average for the top 10 biggest yielders is just 1.21%. This reflects the lofty expected payouts at the three housebuilders, where cover is thin but where healthy net cash balance sheets compensate. Cover for the entire FTSE 100 looks sturdier at 1.79x 2019 earnings, a four-year high. 

Income heroes

The top 10 firms are expected to dish out 54% of the FTSE 100’s total dividends in 2019. Do your research to decide how safe they are, but these payouts provide a healthy antidote to current doom and gloom, and point to a brighter New Year.

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harveyj has no position in any of the shares mentioned. 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.