Dividends have been hit hard by the Covid-19 pandemic. In total, £30bn worth of company dividends have either been cut, or deferred, AJ Bell calculates. Tobacco giant Imperial Brands is the latest to cut its shareholder payout.
Yet income-seekers shouldn’t despair. Plenty of FTSE 100 companies continue to stand by their dividends, despite the meltdown. This may be a sign of financial strength, and a good indication of which stocks you should consider buying today.
We love dividends on Motley Fool. That’s because if you reinvest them back into your portfolio for growth, they could ultimately drive half your total returns over time.
Dividends can make you rich
Before the pandemic, the FTSE 100 was yielding as much as 4.5% a year. It will be roughly half that today. There may be further dividend cuts on the way, now the government has banned firms using its loan scheme from paying them.
Don’t despair though. By targeting companies that remain committed to paying dividends this year, you can get a much higher level of income. AJ Bell personal finance analyst Laura Suter says 140 companies have committed to maintaining £12.3bn in dividends in the coming year. “This includes 26 FTSE 100 firms, including BP,Vodafone Group, GlaxoSmithKline, Diageo and Tesco, meaning income investors still have options,” she noted.
So this isn’t the end of the world for dividends seekers. Especially since those five FTSE 100 companies all offer juicy deals.
Five FTSE 100 income favourites
Oil major BP currently yields an incredible 10.18%. It has yet to cut, in contrast to rival Royal Dutch Shell. The oil price rise could now come to its rescue. In 2019, BP’s breakeven oil price was $56 a barrel. After a cost-cutting drive, it’s aiming for $35 next year. After the recent recovery, Brent crude now costs $36 a barrel. So fingers crossed although, as ever, there are no guarantees when it comes to dividends.
Pharmaceutical giant GlaxoSmithKline yields 4.77%. Operating in the healthcare sector, it has some immunity to current pressures. Glaxo’s dividend has always been one of the most attractive on the FTSE 100. It looks even more so today.
Global telecommunications provider Vodafone halved its dividend, but its payout survived its recent full-year results. Despite last year’s cut, you still get a juicy yield of 6.19%.
Spirits giant Diageo is never the biggest yielder. Today you get 2.42%. Management regularly increases the payout though, giving you a rising income. This is one of my favourite FTSE 100 dividend stocks. People have carried on drinking during the lockdown, and I don’t expect them to stop once they are set free.
Tesco is the great turnaround stock. It’s also one of the heroes of the pandemic, after keeping the food deliveries coming. Chief executive Dave Lewis has stood by its payout, and it currently yields 3.9%.
Dividends are dead? These five FTSE 100 stocks show there’s still plenty of life, if you know where to look.
Now for our favourite UK dividend stock of all.
With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…
As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.
With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?
Fortunately, The Motley Fool is here to help…
Our analyst has unearthed what he believes could be a very attractive option for income- seeking investors – a company that, in his view, boasts a ‘reliably defensive’ business model, combined with a current forecast dividend yield of 4.2% to boot!*
But here’s the really exciting part…
This business even has form in riding out this kind of situation, too… having previously increased sales and profits back in 2008 and 2009 when the world was gripped in the deepest economic crisis since the Great Depression.
*Please be aware that dividends are variable and not guaranteed.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Diageo, Imperial Brands, and Tesco. 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.