The latest Dividend Dashboard from AJ Bell lists the FTSE 100 companies forecast to deliver the biggest dividend yields in 2020. The biggest are in double-digits, but I particularly like the cash expected from M&G (LSE: MNG).
Forecasts suggest the asset manager will pay 8.5% in 2020. Earnings per share should cover it a little over two times, which gives me confidence.
M&G was spun off from Prudential in October 2019 and since then, its share price has risen 10%. But we’re still looking at single-digit P/E multiples, which seems very cheap to me.
I think the apparent undervaluation is largely down to two things. One is that a lot of Prudential shareholders who received M&G shares will have sold them quickly. The other is that the big investing institutions have steered clear as a result of uncertainty. M&G has no track record as an independent company and is changing its investment strategy, which makes it hard to value. They’ve probably adopted a wait-and-see stance.
But I think that hands-off approach has provided an attractive bargain for private investors. And I’m especially attracted to the firm’s dividend plans.
M&G’s management intends to hand over special dividends over the next year or two, though we don’t know how much these will be yet. But some analysts are suggesting total yields, including ordinary dividends, of well in excess of 10%.
It’s probably going to take at least a couple of years for M&G to settle into its groove and start producing results. We’ll need to see how EPS progresses, and what kind of long-term dividend cover we should expect. I doubt cover of two times will be sustainable for long, but anything around 1.5 times or better will satisfy me.
As patient private investors, we don’t have the quarterly targets of the institutional investors. And with a long-term view, we can afford to buy and wait. I’ll be investing more pension fund cash in early 2020, and M&G is near the top of my list.
There are other, even bigger, FTSE 100 dividends I find tempting.
Housebuilders should be paying out big cash in 2020 too, and I’m bullish on the sector. Taylor Wimpey tops the list with a forecast 2020 yield of 10.6%, and has just updated us. Despite a year of Brexit confusion, sales went well for Wimpey, though some cost pressure needs to be watched.
There’s plenty of cash on the books, so I think the firm should be able to pay those big dividends comfortably. I think the shares are cheap, and I’m hoping for some price appreciation in addition to the dividend cash.
The Imperial Brands share price slumped in 2019, but has picked up as we enter 2020. It’s all been about uncertainty over next-generation smoking products, but the sentiment does seem to be turning. The depressed share price has pushed the firm’s forecast dividend up to 12%, and I find that hard to resist.
But if we really are at the start of a sustained recovery, investors might need to buy soon if they don’t want to miss such a big yield.
Overall, I think 2020 will be another great year for income investors.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Prudential. 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.