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Which are the FTSE 100’s best dividend shares to buy now?

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Investing during a stock market crash can give me a great start. But rather than just buy any fallen shares, I’m likely to do much better choosing a strategy that suits. Should I, for example, buy dividend shares? Or would I prefer to look for growth shares? Recently, I asked that very question.

I’ve put together a list of FTSE 100 stocks offering the highest forecast dividend yields. It uses forecasts for beyond the current Covid-19 downturn, as many of this year’s dividends have been reduced or suspended altogether as companies focus on preserving cash.

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The dividend yield isn’t the only key measure, though. There are two other key things I look for. One is cover by earnings. If a company is paying high dividends but not earning enough to cover them comfortably, then they’re not going to be sustainable for very long.

Progressive dividends

The other thing I want is a progressive record. A high dividend yield today might look attractive, but if a company can’t keep it growing then inflation will inevitably take its toll. So, I want a high yield, coupled with reasonable cover and annual rises at least in line with inflation. Looking back to my spreadsheet, these are the 10 FTSE 100 stocks with the biggest yields with both positive cover and positive five-year dividend growth:

Company Forecast yield Forecast cover 5-year progress
Legal & General 9.9% 1.54x +31%
Aviva 9.1% 2.19x +9%
British American Tobacco 8.8% 1.56x +33%
Polymetal International 8.3% 1.51x +596%
Persimmon 8.3% 1.14x +51%
RSA Insurance 7.2% 1.45x +100%
Phoenix Group 7.1% 1.35x +6%
Rio Tinto 7.2% 1.49x +155%
BHP 7.1% 1.42x +89%
National Grid 5.4% 1.16x +14%

That’s a range of companies from a variety of sectors. And I quite like most of them as potential dividend investments. If starting out today putting together a FTSE 100 dividend portfolio, I’d be pleased to see I could get a fair bit of diversification too.

What to look for next

There are some striking differences, though, and I’d dig into these individual candidates before I made my selection. For example, insurer Aviva has the strongest cover of the 10, but its dividend will have only grown by 9% in five years. That’s not enough to beat inflation, so I’d want to uncover the reason for the slow progress.

Then there’s Polymetal International with a massive rise over five years. That just can’t happen every five years, so I’d want to know the story there. And National Grid has the lowest yield of the 10, provides low cover, and the dividend hasn’t grown anywhere near as much as some. Yet it’s one of the most popular FTSE 100 stocks among dividend investors.

I’ll explore these 10 stocks further in a future article. But, for now, I find this a tempting selection.

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Alan Oscroft owns shares of Aviva and Persimmon. 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.

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