The Motley Fool

I think these FTSE 100 dividends are at risk, but I’d still buy

The Covid-19 pandemic is causing chaos for FTSE 100 dividends. Housebuilders, banks, and now insurers have all suspended their payments, and there will surely be more. Today I’m looking at two dividends I think are at some risk. But they’re both companies I’d seriously consider buying.

Throughout the last oil price crash, BP (LSE: BP) maintained its dividend.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

But it sold off assets and worked hard on its balance sheet, and maybe a dividend reduction would actually have been a good idea. Will it do that in the latest crunch, with oil down around $30 and demand crumbling?

Best FTSE 100 dividends?

FTSE 100 dividends are generally considered among the safest, and companies are very reluctant to cut them. But the PRA has stepped in and is urging firms to preserve their balance sheets. And that could make a significant difference to the way companies that do cut their dividends would look.

If BP went that way, people could see it as being economically and socially responsible, and not as a dividend-slashing pariah. I think the BP dividend is probably safe for now, but the risk of a cut seems far greater than last time.

The BP share price has dropped further than the index, down 29% so far in 2020. That pushes the forecast yield up to 9.5%, making it one of the highest FTSE 100 dividends that has not yet been cut.

If the payout is maintained, that’s an obviously attractive income prospect. But if, as might happen, FTSE 100 dividends are pared back further, share prices could give up their recent rally. And I do think the recent FTSE rebound is over-optimistic.

But if we see the further dips that I expect, I think it could make BP shares an even more tempting long-term buy.

Falling demand

Rio Tinto (LSE: RIO) offers another FTSE 100 dividend that has just been confirmed. The firm is to go ahead with its 2019 final payment, but I think the 2020 dividend could come under pressure.

With so many industries closed down, demand for metals and minerals is falling. And I think the coronavirus-led downturn could last longer than many folks think.

The Rio Tinto share price is down 18% since the start of the year, against the FTSE 100’s 25%. That does include a bit of a rebound towards the end of March, despite Rio telling us around the same time that it’s suspending or slowing some operations.

Cyclical sector

Is the relatively modest price fall a result of expectations that the dividend will be maintained? With 7% forecast, Rio doesn’t offer as big a potential payout as BP, but it’s still one of the best FTSE 100 dividends out there — for now.

I think the share price is likely to fall back again, for one of two reasons. I’ve already said I’m pessimistic about the FTSE 100 over the short term, and I do think a cut to Rio’s dividend is more likely than the market might expect.

But if you can stand the cyclical nature of commodities, Rio could still be a good long-term buy. It’s very tempting to buy on any future dips.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.