For me, the quarterly Dividend Dashboard from investment firm AJ Bell is essential reading. The most recent illustrates something I’ve always said — that a progressive FTSE 100 dividend can be more valuable than a big current yield.
Drawing on various sources, including Refinitiv data and Digital Look, the Dashboard ranks FTSE 100 dividend stocks in terms of their effective 2020 dividend yields on 2010 share prices. If, for example, you buy shares in Intermediate Capital Group (LSE: ICP) today, you’d be looking at a forecast dividend yield of around 4.5%.
That’s a decent return, especially as the Footsie’s expected yield has dipped below 4% in 2020. But what if you’d bought Intermediate Capital shares a decade ago? What would the predicted dividend yield against your original purchase price be?
The top three dividends
As it happens, Intermediate Capital comes third in the list of FTSE 100 10-year yields. And on 2010 share price levels, this year’s expected payout would provide a massive 20.3% yield. That’s the kind of future income level that could have a retired investor sleeping comfortably at night, and not worrying about the State Pension.
I think Intermediate Capital has defensive qualities too. As a provider of corporate finance with global diversification, it can do well, whichever companies in whichever sectors are currently ahead. It’s like those who sold the picks and shovels to the gold rush prospectors. They made their profits no matter who unearthed the nuggets.
In second place comes Legal & General. The insurance firm’s current forecast dividend would provide an effective yield of 21.4% for those who bought in 2010. I’ve written about Legal & General elsewhere, so I won’t cover it much further here.
Except, I’ll just point out one thing. Insurance investments can be among the FTSE 100’s most volatile. But I’ve always contended that the long-term income potential from the industry can outstrip any erratic share prices. This finding confirms Legal & General has achieved exactly that.
Top FTSE 100 dividend
Top place in the list belongs to Ashtead (LSE: AHT). This is an equipment rental firm, which might sound a bit dull. But it’s been generating cash very nicely.
Ashtead is ahead by a mile, with an effective 2020 yield of 36.3% on the 2010 share price. If you’d bought the shares back then, you’d be banking some nice fat dividend cheques today.
On today’s Ashtead share price, the predicted dividend would yield a miserly 1.4%. So if you’re searching for FTSE 100 dividends to provide you with income over the next 10 years, you might reject Ashtead right away.
But although the current yield is low, the company has been raising its dividend well ahead of inflation. Between the years ending April 2016 and 2020, Ashtead has increased its payout by 80%.
Smallest is best?
Looking back to 2010, at that time the Ashtead dividend yield was the lowest of the three. You’d have earned 2.7% at December 2010 prices, while Legal & General shareholders pocketed 5.6% with Intermediate Capital offering 6.5%.
In these examples, the stock offering the biggest yield at the time has turned into the poorest FTSE 100 dividend investment of the three 10 years later (though still a cracking success). And the weakest at the time has become the strongest.
That really does show how a progressive dividend can be a lot more valuable than an immediately bigger one.
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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.