There couldn’t have been a worse year for income investors than 2020. Many FTSE 100 companies’ dividends were either cut or suspended as lockdowns took a toll on business activity. If you’ve been looking for high and stable dividend payments, I feel your pain. But there is good news. Some FTSE 100 companies have re-started dividend payments and others have even increased the dividend amounts.
As tempted as I was to write about them earlier, it just seemed too soon to get bullish. We were still in the midst of a pandemic, the economy was looking horrible and business had just tentatively picked up. However, now with hopes of a vaccine, robust economic growth in the UK and improving performance in some pockets of the economy; I think it’s a good time to reconsider FTSE 100 stocks that can earn big dividends.
FTSE 100 stock with stable dividends
One stock I like is the FTSE 100 water supply and sewerage services provider, Severn Trent (LSE: SVT). Its dividend yield is just below 4%. This isn’t anywhere near the biggest dividend payouts. But it’s not among the lowest either. Moreover, it also appears to be quite safe. The service SVT provides is so key, its demand isn’t about to fall off a cliff. That’s more than I can say for many other FTSE 100 companies, some of which I hold in my own portfolio.
The one note of caution on SVT is about its performance this year. We don’t have an update on SVT’s performance since its July update, where it flagged a hit to revenues and potentially higher bad debts. We will know more when it updates information later this month. Even in these challenging times, however, I’m optimistic that SVT will continue to pay dividends given its past history of paying them and the renewed optimism for 2021.
I also like SVT because it’s not just a dividend stock. On average, in 2020 its share price has risen 18% from 2019. In fact, even from the last time I wrote about it in May this year, its share price is up almost 5%. This can be a much bigger gain than buying a high-dividend yield share, when the share price is falling. I do realise that in the year of the bear, it was to be expected. Investors were going to buy shares in safe companies, and SVT is one of them. But, I’m encouraged by the fact that its share price has already bounced back after seeing a short spell of decline recently.
Another option to consider
In the same vein, I like another utility stock, National Grid, too. It actually has a higher dividend yield of around 5.2% today. But, the reason I wrote about SVT and not NG is that there’s been too much negative news flow about it in recent months. This includes an expected earnings decline, potential issues with power supply, and even the possibility that it may be absolved of its role as the electricity system operator. I’m sticking with SVT as a good dividend stock for now.
Manika Premsingh 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.