American enterprise tycoon John D Rockefeller as soon as admitted, “Do you understand the one factor that provides me pleasure? It’s to see my dividends coming in.” Dividends are common money payouts made by firms to their shareholders. Typically, dividends are distributed both quarterly or half-yearly. For me, dependable FTSE 100 dividends are the closest factor to free cash that I’ve ever loved. And, very importantly, dividends (and dividend reinvestment) might account for as a lot as half (50%) of long-term returns from shares and shares.
FTSE 100 dividends are set to soar
As Covid-19 unfold worldwide in 2020, FTSE 100 dividends slumped. The excellent news is that money payouts are set to rebound in 2021, in response to this new report (PDF) from funding agency AJ Bell. (Every quarter, AJ Bell’s glorious Dividend Dashboard report forecasts UK dividends for the present and coming 12 months.)
According to Q2’s report, FTSE 100 dividends (excluding particular dividends) are anticipated to develop by 1 / 4 (25%) this 12 months. Total forecast Footsie dividends of £76.9bn in 2021 equate to a 3.7% dividend yield for the UK’s most important market index. That’s a £15.4bn enchancment on the £61.5bn paid out in 2020. What’s extra, as firm earnings get better, dividend cowl ought to enhance to 1.83 — its highest degree since 2014. Dividend cowl expresses the ratio of firm earnings to dividends paid out. The increased this ratio, the extra well-covered and safe dividends are.
In addition, AJ Bell’s newest replace reveals no scarcity of high-yielding FTSE 100 dividend shares. Indeed, 9 Footsie corporations have a forecast dividend yield of greater than 7% a 12 months. For me, few different property provide such tempting revenue streams.
The Footsie’s 5 largest dividend payers
With virtually £77bn of FTSE 100 dividends anticipated to be paid out this 12 months, I’m eager to seize my justifiable share. Indeed, mega-cap dividends are the principle supply of passive revenue for my household portfolio. Hence, I’m all the time looking for robust firms in a position to pay hefty dividends to their homeowners. Then once more, simply 10 firms are anticipated to generate greater than half (52%) of complete blue-chip dividends this 12 months. Similarly, the highest 20 are anticipated to generate greater than seven-tenths (71%) of 2021’s complete pay-out.
According to AJ Bell, these 5 Footsie corporations are forecast to pay the biggest dividends by measurement in 2021:
2021 Dividend yield*
British American Tobacco
Royal Dutch Shell
As you’ll be able to see, AJ Bell expects every of those 5 FTSE 100 corporations to pay yearly dividends of £3.8bn+ this 12 months. The largest, world mining big Rio Tinto, is forecast to return over £8.7bn in money to shareholders. Then once more, historical past means that very excessive dividend yields — sometimes, in extra of 10% a 12 months — are not often sustainable. Thus, Rio might have to chop its payout if metals costs fall again (simply because it did in 2016).
One warning about dividends
Like Rockefeller, I like seeing my dividends coming in, however I additionally know that these firm distributions are under no circumstances assured. Indeed, three of the 5 FTSE 100 firms within the above desk have lower their dividends up to now decade. As properly as Rio in 2016, Shell lower final 12 months and BHP lower in 2016 and 2020. Therefore, I’ll by no means rely solely on share dividends for my complete revenue. Otherwise, a sudden shock may depart me reasonably wanting money!
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(*5*) has no place in any of the shares talked about. The Motley Fool UK has really useful British American Tobacco and Unilever. Views expressed on the businesses talked about on this article are these of the author and subsequently might differ from the official suggestions we make in our subscription providers, akin to Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we imagine that contemplating a various vary of insights makes us higher traders.