This year, UK investors were eagerly looking forward to pocketing almost £100 billion in cash dividends from FTSE 100 and other UK-listed companies. Then along came the coronavirus pandemic, plus an oil crisis, causing a steep stock market crash.
FTSE 100 dividends are dying
Alas, according to the Financial Times, FTSE 100 members alone have slashed shareholder payouts by £23.8 billion since this crisis erupted. Shockingly, some of the UK’s most reliable dividend dynamos cancelled their cash payouts, including oil behemoth Royal Dutch Shell and telecoms stalwart BT.
Among the wider FTSE 350 index, more than one in three firms have suspended or cancelled dividends in the past 10 weeks, with only 23 declaring a dividend since this crisis unfolded.
When companies face existential crises like Covid-19, it makes sense to conserve cash at hand, because today’s dividend payouts might just threaten firms’ tomorrows. Also, cancelling dividends now might easily lead to lower future payouts, which is why Mr Market likes to severely mark down share prices of dividend-cutters.
Go big for bumper dividends
Of course, when Shell – the largest UK’s dividend-payer by far – cancels its payout for the first time in 75 years, I fear for dividends right across the market spectrum. Then again, some FTSE 100 payouts were not fully covered by earnings and cash flow, so a few suspensions or resets are hardly surprising and even expected.
Given that Footsie dividends are highly concentrated among mega-caps (the very biggest businesses), it’s here that I’d recommend income investors focus their search for yield.
Good old Vodafone fits my bill
My pick of the FTSE 100 crop for income-seeking investors is a long-time favourite among high-yield fans: Vodafone (LSE: VOD). Here are six reasons why:
First of all, Vodafone has an easily understood business model, providing telecoms services to 444 million customers in 26 countries.
Second, Vodafone already cut its dividend, taking an axe to the payout by almost halving it in 2019. This ‘accidental foresight’ has left the firm with far greater liquidity going into this historic downturn.
Third, the FTSE 100 company confirmed in its full-year results earlier this week that it would hold its dividend – great news for desperate pension funds and pensioners alike.
Fourth, even after ‘the halvening’, Vodafone’s current yield is a whopping 6.6%, based on a yearly dividend of 7.9p and a share price currently hovering around 119p.
Fifth, this financial year’s cash payout should be fully covered by Vodafone’s free cash flow (estimated at £4.4 billion).
Sixth, after roughly halving over the past five years, Vodafone’s shares are not obviously overpriced in historical terms, given that the company has recently resumed revenue growth.
In summary, there you have it: a FTSE 100 firm offering one of the market’s highest dividend yields, in an industry that has largely dodged the worst of the coronavirus crisis. What’s not to like?
Cliff D'Arcy doesn't own shares in any of the companies 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.