The coronavirus outbreak has dominated financial headlines in recent days as many FTSE 100 shares have felt the adverse impact of investor nervousness and have fallen around double digits.
A lower share price obviously boosts the prospective dividend yield, assuming the company does not cut the dividend. The good news is that most high-quality dividend stocks continue paying and even raising dividends during bear markets. In other words, as long as companies do not reduce their dividends, income keeps rolling in regardless of how the market behaves.
Today, I’d like to share with you several FTSE 100 companies whose prospective dividend yields are now over 6%. To lock in any of these dividend payments, investors have to purchase the stocks before their respective ex-dividend dates.
Why dividends matter
One of the more common questions I hear is “should I invest in dividend stocks?” Dividends are mostly favoured by people who want to create a consistent passive income stream or build their wealth over time. Many people rely on dividend income, especially in retirement.
With ever-increasing costs as well as longer life expectancies and the growing number of years the average Briton will spend in retirement, each of us might actually need about a million pounds to see us through our golden years comfortably.
Seasoned investors would agree that there are three catalysts to achieving that million – dividend shares, compound interest, and time. Falling equity markets are now creating important opportunities for income investors looking for high dividend yields offered by robust companies.
To me, when companies pay steady dividends, it usually shows that they put shareholders first when it comes to profits. Although there will be exceptions, they are also generally established and cash-rich companies where management is able to take steps to ride out volatile or tough market conditions.
Income investors also know that they can compound their returns through reinvesting dividends from high-yielding shares. They treat their dividends with respect and reinvest them so that they can go on to generate more income.
Thus a sizeable amount of wealth can realistically be accumulated by long-term ownership of profitable firms that generate ever-growing earnings and that also pay dividends.
If you too would like to focus on growing dividend income rather than the noise and nervousness caused by volatile share prices, then you may want to do further due diligence on many London Stock Exchange (LSE) shares.
FTSE 100 shares
The FTSE 100 consists of the 100 UK-listed stocks with the biggest market capitalisations. Many of them have generous dividend yields that pay between 4% and 6% annually on average. But with the recent decline in prices, investors are now able to get better yields. Here are several FTSE 100 stocks that offer yields over 6%. I’m currently keeping an eye on them with a view to investing for the long term, especially if share prices drop further.
- Aviva – 8.6%
- BP – 8.2%
- British American Tobacco – 6.8%
- British Land – 6.3%
- BT – 10.8%
- Carnival – 6.4%
- HSBC Holdings – 7.5%
- Legal & General Group – 6.4%
- Lloyds Banking Group – 6.7%
- Rio Tinto – 8.2%
- Royal Dutch Shell – 8.8%
- Standard Life Aberdeen – 7.8%
- WPP – 7.9%
As always, these aren’t formal recommendations. They could be a starting point for more research, however.
Finally, if you’re unsure about which type of assets may suit your needs, you may want to talk to a financial adviser before moving forward with a specific type of investment.
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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co, Carnival, HSBC Holdings, and Lloyds Banking Group. 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.