The Covid-19 pandemic hammered FTSE 100 dividend shares in 2020. The dividend trend cycle had been in a positive spell too. In 2018, London’s top index yielded 4.7%, ahead of its long-term average. A year later, companies were already paring back their final dividends. And for 2020, we’re looking at a yield of around 3.5%. It’s worse than it sounds too, as that yield is on a depressed FTSE 100.
Before the pandemic, analysts were forecasting more than £90bn to be paid out in FTSE 100 dividends in 2020. In reality, according to AJ Bell‘s Dividend Dashboard, the total reached just £61.4bn. But dividends in 2021 look set to come back strongly, with a forecast of £74.3bn on the cards. That’s an increase of 21%, with a predicted yield of 3.8%.
Though some dividends will surely bounce back, I do still expect some caution. I doubt we’ll see the Footsie paying out that previously suggested £90bn in dividends for at least a couple more years yet. Still, I do think 2021 could turn out to be a great year for FTSE 100 dividend shares. Which ones look like being the strongest?
Perpetual high yielders
A couple of high-yielders have been out of fashion for some time, Imperial Brands and British American Tobacco. Consumers increasingly shun tobacco. Yet these two giants keep on generating cash and lining shareholders’ pockets with it. Forecasts suggest a yield close to 10% from Imperial Brands in 2021, even after a dividend cut in 2020. Not far behind, British American is forecast at 8%. When I see yields that high, I reckon I’m either looking at top buys, or at dividends heading for cuts. I won’t buy in to the tobacco industry for ethical reasons. But I remain convinced that rumours of its demise are exaggerated, even though I could be wrong.
A look at FTSE 100 dividend shares wouldn’t be complete without Evraz, now on a forecast yield of close to 11%. But the steel maker does comes with risk. The commodities market is a volatile one, Evraz has been through some ups and downs, and its dividend can be erratic. On top of that, the company carries a lot of debt, and that could harm it in a downturn.
But I do think 2021 could be a decent year for the cyclical commodities market. A number of miners figure among the highest FTSE 100 yields now, including Rio Tinto on 10% and BHP Group on 7.6%. Fellow Fool writer Rupert Hargreaves has recently written about the improving shareholder returns from Rio Tinto. I’m tempted.
Top sector for FTSE 100 dividend shares?
For me, the banking sector is the one to watch in 2021. Analysts expect Lloyds Banking Group, Barclays, HSBC Holdings and NatWest Group (formerly Royal Bank of Scotland) to offer big jumps this year, in percentage terms at least. Yields should still be relatively low. But PRA rules prevent bigger hikes, and it looks like the banks will raise their dividends as much as they’re allowed. I want to see what happens when the regulations loosen up.
Whether the ones I’ve looked at here are among the best for 2021 remains to be seen. But I’m seeing a lot of very attractive FTSE 100 dividend shares this year. There’s a lot to choose from.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, Imperial Brands, and Lloyds Banking Group. 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.