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The ten highest dividend yields in the FTSE 100

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The ten highest dividend yields in the FTSE 100

The FTSE 100 is a market index made up of the 100 largest companies by market capitalisation on the London Stock Exchange, and it is usually used as a benchmark to judge the performance of the UK equity market.

The index is also usually a first port of call for income investors.

The FTSE 100’s strong dividend credentials

According to AJBell’s Q1 Dividend Dashboard, 2022 could be the second-best year ever for total FTSE 100 cash returns. AJ Bell is projecting total dividend payouts of £81.2bn in 2022 and a further £32.7bn in share buybacks, although these numbers could change as the year progresses.

At the end of April, the FTSE 100 dividend yield stood at 3.4%.

Overall, 97 FTSE 100 firms are expected to pay out in 2022, up from 85 in 2020 when the pandemic forced companies to rethink their cash return plans. The best year on record for dividends in cash terms was 2018 when payments peaked at £85.2bn.

Analysts believe blue-chip profits will hit a record of £169.7bn, lifted by strong earnings growth in the mining and healthcare sectors. These numbers suggest the index’s constituents will have headroom to return even more cash to investors next year.

Here’s a list of the ten highest-yielding stocks in the FTSE 100 and our favourite picks for income in the blue-chip index.

Company

Dividend per share for 2022*

Dividend per share for 2023*

Dividend yield (%)

Dividend growth (%)*

Forward (p/e)*

Rio Tinto

$8.84

$6.20

13.5

-30

5.3

Persimmon

239p

241p

11.3

0.1

8.2

M&G

19.4p

20.2p

9.1

3.4

9.7

Royal Mail

28.7p

22.6p

8.5

-21.2

5.7

Imperial Brands

142p

147p

8.3

3.5

6.9

Phoenix Group

49.9p

51p

8.1

2.1

8.1

Abrdn

14.6p

14.6p

7.7

7.7

15.2

Legal & General

19.3p

20.2p

7.8

4.7

7.5

Barratt Developments

37.6p

43.2p

7.8

15

6

Aviva

31p

32.5p

8.2

5

7.1

*Estimated

The top blue-chip income stocks – and the two I would buy now

Mining giant Rio Tinto currently supports the highest dividend yield in the FTSE 100. While the yield of 13.5% does look attractive, I’d err on the side of caution here. Commodity prices have surged over the past year, generating huge profits for producers.

However, the chances of this trend continuing indefinitely are slim. The fact that analysts expect the payout to fall 30% next year, illustrates this point perfectly. Investors should approach the estimated yield figure with caution.

Analysts have also pencilled in a prospective 21% fall in Royal Mail’s dividend payout for 2023. This reflects concerns about capital spending plans and rising costs. The company benefited from a surge in parcel deliveries during the pandemic, and has been returning a large chunk of this windfall to investors. Unfortunately, this goldilocks environment looks set to come to an end as parcel volumes normalise and costs rise.

Another sector facing pressure is asset management. Investors are pulling cash from expensive active funds and moving this money into cheap passive funds, a trend that only looks set to accelerate. Asset managers like Abrdn and M&G have been trying to diversify their operations to return to growth, but they’re facing an increasingly challenging and competitive market. As headwinds build, I’d avoid the sector.

Imperial does not make my personal “buy” list for ethical reasons, and pension consolidator Phoenix’s growth outlook is not encouraging. Considering all of the above, my favourite high-yield FTSE 100 dividend stock on the list above is Legal & General (LSE: LGEN), closely followed by Persimmon (LSE: PSN).

Both companies have strong balance sheets and they’re riding huge structural tailwinds, which should underpin profit (and dividend) growth in the years ahead.

An ageing population and growing demand for pensions and financial services will act as a tailwind for Legal & General. As one of the biggest and most respected long-term savings managers in the country, it also has a large reputational advantage over peers. Aviva (LSE: AV) also looks attractive, although it does not have the size nor the scale of its larger FTSE 100 peer.

Meanwhile, the UK’s structural housing shortage suggests demand for Persimmon’s new-build homes, which sit at the affordable end of the spectrum, will continue to grow. Buoyant demand for homes should enable it to continue to offset rising construction costs, fund new developments and return cash to investors.

SEE ALSO:
Britain’s ten most-hated shares
Britain’s most-bought shares
Director dealings: what company insiders are buying and selling

https://moneyweek.com/investments/investment-strategy/income-investing/604871/the-ten-highest-dividend-yields-in-the-ftse

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