The pandemic has been bad for dividends, with more than half of FTSE 100 stocks cutting, deferring or cancelling shareholder payouts worth more than £37bn. That’s a massive blow for investors, although the good news is that we should still pocket almost £60bn this year, according to the latest AJ Bell Dividend Dashboard.
The outlook for 2021 is much brighter. AJ Bell forecasts that dividend payments from FTSE 100 stocks will increase by 18%, an increase of £10.9bn. That means collectively we will get more than £70bn next year.
Covid-19 has been been even worse for cash, with the Bank of England slashing interest rates to just 0.1%. Do you know how much the big high street banks pay on their savings accounts now? A vanishingly low 0.01%. Can’t imagine finding a comfortable retirement based on that kind of return.
I’m backing FTSE 100 stocks over savings
The really bad news about cash is that there is no sign of interest rates picking up in the near future. We need a full-blooded economic recovery before that happens. I’m optimistic about 2021, but not that optimistic. By contrast, FTSE 100 dividend stocks are already fighting back.
Some 15 FTSE 100 stocks have now confirmed plans to restore dividends this fiscal year. Payouts should be worth up to £3bn in total. There is a long way to go to make good this year’s losses, but it is a step in the right direction.
Here’s the full list of those FTSE 100 stock dividend restorers: BAE Systems, Ferguson, Smurfit Kappa Group, Aviva, Sainsbury’s, Mondi, Smiths Group, Persimmon, WPP, Land Securities Group, British Land, Bunzl, Rentokil Initial, DS Smith and Taylor Wimpey. Also, BT Group has signalled that it will restore its payout next year.
Of these, BAE Systems is set to be the most generous, lining up dividends totalling £746m, followed by Ferguson (£360m) and Smurfit Kappa and Aviva (both £236m).
All hail the return of the dividend!
This gives investors a wealth of income-paying FTSE 100 stocks to aim at next year, and there are some incredible yields on offer. Fund manager M&G, tobacco giants Imperial Brands Group and British American Tobacco, and mining company Polymetal International are forecast to be the highest yielding stocks in 2021.
Cash will destroy your wealth
M&G is expected to yield a whopping 9.5% in 2020, followed by Imperial Brands at 9.3%. Polymetal and British American Tobacco come next, both at 8.4%. These are incredible levels of income, especially when you compare them to cash.
Investing in shares is obviously riskier than leaving money in the bank, because your capital is at risk. However, if you are investing for periods of five years or longer, you have plenty of time to fight back from any short-term market correction.
The longer you invest, the more your money grows. With cash, the opposite is true. The longer you leave your money in the bank, the more inflation will erode its value. That is why I am once again shunning cash in 2021, and investing in top FTSE 100 stocks.
Interest of 0.01% on cash or yields of up to 9.5% on stocks? That’s why I reckon shares are the best way to get rich and retire early.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co, DS Smith, Imperial Brands, and Landsec. 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.