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FTSE 100 still offers high yields despite forecast 24% dividend decline

“Investors will have to look carefully at the list of the highest-yielding firms, as some of them have a track record of having to cut their dividend payments when times get tough”

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Total FTSE 100 dividends are on course to fall to their lowest level since 2012 this year compared to last year but there are still very attractive yields available among London’s blue chips, according to new research.

London’s blue chips will cut dividends by £18bn or 24% in 2020 compared to last year, according to cuts that have been announced and analysts forecast compiled by AJ Bell.

Although 35 Footsie constituents having cancelled, cut or are withholding their shareholder payouts, just four firms represent bulk of the £18bn cut: Royal Dutch Shell PLC (LON:RDSB), BP PLC (LON:BP.), HSBC Holdings PLC (LON:HSBA) and Glencore PLC (LON:GLEN).

British American Tobacco PLC (LON:BATS) is now the biggest dividend payer on the FTSE 100, with an expected near-£5bn dividend that means its shares yield around 8%.

The highest forecast yields on the FTSE are offered by M&G PLC (LON:MNG) at 12.5% and Imperial Brands PLC (LON:IMB) and Aviva PLC (LON:AV.), both around 10%.

Other high yielders include Standard Life Aberdeen PLC (LON:STA) and Legal & General Group PLC (LON:LGEN), both at just under 10%.

Just between BP’s 8.5% and BAT’s 8%, there’s Vodafone PLC (LON:VOD) at 8.1%.

Filling out the top ten blue chip dividend yields, Evraz PLC (LON:EVR) is forecast to pay 7.3%, while Phoenix Group PLC (LON:PHNX) is at 7%.

These highest yielding stocks might not be everyone’s taste, said AJ Bell investment director Russ Mould, pointing to those who feel that tobacco does not pass their socially responsible investing (SRI) tests. 

“However, others will welcome how BAT’s chief executive Jack Bowles continues to stick to his target of a 65% dividend pay-out ratio. The company’s interim results offer support to earnings forecasts too, in the absence if changes to sales and earnings guidance for both 2020 and the medium-term."

Looking at Aviva, which is one of ten FTSE 100 firms to scrapped payments earlier in the year but have since restored them or declared their intention to do so.

But Aviva’s 10% forecast yield “may make investors nervous”, said Mould, even though chief executive Amanda Blanc has a clear mandate to shake up the life insurer after her appointment to replace Maurice Tulloch in July.

He noted other double-digit forecast dividend yields in the past “looked good on paper” but saw the likes of Centrica and Vodafone trim theirs last year, with Taylor Wimpey, Persimmon and Evraz making cuts this year. 

“If Aviva can deliver, then the shares could prove to be very cheap indeed,” he said.

M&G meanwhile, is the only company in the top ten to have its dividend covered at least two times by earnings, according to analysts’ forecasts.

“Investors will have to look carefully at the list of the highest-yielding firms, as some of them have a track record of having to cut their dividend payments when times get tough.”

Quick facts: Royal Dutch Shell PLC

Price: 929.2 GBX

LSE:RDSB
Market: LSE
Market Cap: £72.58 billion
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