It has been a bad time for FTSE 100 income investors. In recent days, many companies have announced dividend cuts. At a time when many companies anticipate falling sales, holding back dividends is prudent for financial health.
As an investor, however, this is disappointing. I invest partly for income myself, and am losing a steady flow of income from FTSE 100 shares. Indeed, the loss of dividend income can even be perilous for investors who rely on that money for day-to-day expenses.
At the same time, if a company continues with dividend payouts despite weakening finances, it puts itself at risk. Shareholders may be upset with that decision, too. If I’m a shareholder in a company, I don’t want to see the value of my capital decline. It is a situation with no easy answers.
I’m now considering how to make the most of the scenario in which we unexpectedly find ourselves. If I still want to find passive income, I’d consider relatively safe FTSE 100 dividend stocks, such as defensives. These can be slotted into three categories in the present scenario.
The first of these is defensives, which don’t see too much change in demand for their products and services in slowdowns. These include B2B service providers. One example is the Sage group, which provides accounting services. Another example is RELX, which is an analytics and decision-making tools provider. However, neither of these shares is a dividend star. At the time of writing, both have dividend yields at sub-3% levels. That’s not encouraging for an FTSE 100 income investor.
Consumer goods and utilities
Another category of defensives includes consumer goods and utilities. Consumer staples FTSE 100 stock Unilever would see limited change in demand normally. In the present situation, where consumers are piling up on groceries and cleaning products, the impact of Covid-19 may even result in an increase in demand. However, Unilever also has a low dividend yield right now.
Utility providers like National Grid are also an option to consider. During the lockdown there’s a hit to demand from business, but home use of electricity and gas is higher. I particularly like National Grid for its relatively higher dividend yield of 5.1% at the time of writing.
Healthcare providers hold promise
But the best placed FTSE 100 defensives in my view are the ones at the forefront of tackling the coronavirus pandemic. FTSE 100 healthcare biggies GlaxoSmithKline and AstraZeneca are two examples. GlaxoSmithKline is teaming up with France’s Sanofi to develop a Covid-19 vaccine. Its dividend yield of 4.7% is just shy of the FTSE 100 average of 4.9%, but should be taken in context. While other FTSE 100 shares are still recovering from the stock market crash, GSK’s share price has risen far more sharply. This promising defensive stock could to do so during a slowdown.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended RELX and Sage 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.