FTSE 100 dividends in touching distance of pre-pandemic peak

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The FTSE 100 is currently expected to yield 4.1% in 2021, helped by the first year of dividend growth since 2018. The index’s total dividend pay-out is expected to reach £84.1 billion in 2021, compared to £61.8 billion in 2020, an increase of 36%.

Total payments peaked at £85.2 billion in 2018 and 2022 is expected to get tantalisingly close to that mark, at £85.1 billion, as corporate profits, cash flows and confidence look to recover from the effects of the pandemic.

Dividend forecasts for 2021 have advanced for the fourth quarter in a row, buoyed by more optimistic forecasts for miners in particular. This reflects higher industrial metals prices, although September’s sharp drops in copper and iron ore could potentially put the lid on this positive forecast momentum, should they persist.

For the moment, however, dividend payments are seen reaching £85.1 billion in each of 2022 and 2023. What’s more, dividend cover is improving. The aggregate earnings cover ratio for the FTSE 100 is now forecast at 1.77 in 2021, an improvement on 2020’s 1.45 times earnings cover.

Chart -  FTSE 100 dividends in touching distance of pre-pandemic peak

Source: Company accounts, Marketscreener, analysts’ consensus forecasts

Majority of dividend growth comes from just ten firms

Just ten companies are expected to generate 80% of 2021’s dividend increase. Rio Tinto and BHP Billiton are the top two, so income-seekers may be concerned by autumn’s slump in the iron ore price amid concerns over economic growth in China in particular.

Miners offer five of the six biggest forecast dividend increases in 2021 but that number dwindles to just two in 2022, when reductions at several resources plays hold back the overall forecast for the FTSE 100.

Ten biggest forecast dividend increases in 2021

  2021 E
Dividend increase (£ million)
2021 E
Dividend increase (% FTSE total)
Rio Tinto 6,467 28.9%
BHP Group 2,621 11.7%
Anglo American 2,492 11.2%
HSBC 1,182 5.3%
Evraz 1,021 4.6%
Glencore 854 3.8%
Barclays 840 3.8%
Lloyds 838 3.7%
Royal Dutch Shell 768 3.4%
BT 763 3.4%

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

Company profits forecast to hit record high

A renewed drop in economic activity could still pose a big risk to dividend forecasts. Analysts currently believe that 2022’s (adjusted) net profits will exceed not only the pre-pandemic peaks of 2018 but the current all-time high of 2011, when commodity prices were roaring higher, and miners and oil producers generated 42% of the FTSE 100’s profits between them.

Miners, oils and financials are expected to generate more than 80% of 2021’s expected £128 billion increase in pre-tax income and each of those three is sensitive to global economic growth to some degree or other.

If the economy offers little or no assistance – or even hinders – then these earnings forecasts, and by extension, dividend payment estimates could find themselves exposed to the downside.

Chart -  FTSE 100 dividends in touching distance of pre-pandemic peak

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

Investors still need to focus on concentration risk

By extension, investors must assess concentration risk when it comes to dividends as well as earnings. Just ten stocks are forecast to pay dividends worth £45.6 billion, or 55% of the forecast total for 2021. The top 20 are expected to generate 73% of the total index’s pay-out, at £61.1 billion.

Anyone who believes the UK stock market is cheap on a yield basis, and looking to buy individual stocks, glean access via a passive index tracker or even buy a UK equity income fund needs to have a good understanding of, and strong view on, those 20 names in particular.

  2021 E
Dividend (£ million)
2021 E
Dividend yield (%)
2021 E
Dividend cover (x)
Cut in last decade?
Rio Tinto 10,813 17.8% 1.28x 2016
British American Tobacco 4,966 8.1% 1.43x No
Royal Dutch Shell 4,739 4.2% 2.86x 2020
BHP Group 4,594 11.3% 1.03x 2016, 2020
GlaxoSmithKline 4,004 5.7% 0.95x No
Unilever 3,725 3.6% 1.31x No
Anglo American 3,490 9.5% 1.94x 2015, 2016, 2020
HSBC 3,364 4.4% 2.22x 2019, 2020
BP 3,142 5.1% 2.82x 2011, 2020
AstraZeneca 3,116 2.5% 1.34x No
Vodafone 2,152 6.3% 0.89x 2018
Glencore 2,004 4.5% 2.29x 2015, 2016, 2020
National Grid 1,808 5.2% 1.30x No
Diageo 1,694 2.1% 1.62x No
Evraz 1,560 17.9% 1.33x 2012, 2013, 2014, 2020
Imperial Brands 1,322 9.0% 1.67x 2020
Reckitt Benckiser 1,250 2.8% 1.73x No
Lloyds 1,242 3.9% 4.00x 2019, 2020
Legal and General 1,074 6.3% 1.81x No
NatWest Group 1,034 4.2% 2.33x 2019

Source: Company accounts, Marketscreener, consensus analysts’ forecasts, Refinitiv data

The ten firms forecast to be the biggest dividend payers

Rio Tinto is expected to be the single biggest paying stock within the FTSE 100 in 2021. Not all investors will welcome this, especially those who feel that mining does not pass their socially responsible investing (SRI) or environmental, social and governance (ESG) screen tests, especially after Rio’s appalling behaviour when it destroyed sacred aboriginal sites as part of a copper mine extension in Australia. However, others will welcome how new chief executive Jakob Stausholm is both reforming the company’s governance and cash flow.

What also catches the eye is that Shell and BP still both feature in the list of the ten biggest payers, even after their dividend cuts of 2020. Again, this may have ESG-oriented investors gnashing their teeth, especially as they may argue both firms are acting too slowly in their attempts to shift their business mix to more renewable sources of energy. Shell and BP do have a tricky balancing act as they look to get the best out of their existing assets, reinvest for the future (without overpaying here, amid the mad scramble for ‘green’ assets) and keeping shareholders sweet with cash returns.

  2021 E
Dividend (£ million)
2021 E
Dividend yield (%)
2021 E
Dividend cover (x)
Rio Tinto 10,813 17.8% 1.28x
British American Tobacco 4,966 8.1% 1.43x
Royal Dutch Shell 4,739 4.2% 2.86x
BHP Group 4,594 11.3% 1.03x
GlaxoSmithKline 4,004 5.7% 0.95x
Unilever 3,725 3.6% 1.31x
Anglo American 3,490 9.5% 1.94x
HSBC 3,364 4.4% 2.22x
BP 3,142 5.1% 2.82x
AstraZeneca 3,116 2.5% 1.34x

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

The ten firms forecast to have the highest yields in 2021

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.

At the time of writing, Evraz is the highest-yielding individual stock, closely followed by Rio Tinto and then BHP. Forecast yields of more than 10% may make investors a little wary, given the shocking record of firms previously expected to generate such bumper returns, including Vodafone, Shell,

itself and – when they were still in the FTSE 100 - Royal Mail, Marks & Spencer and Centrica. All were forecasts to generate a yield in excess of 10% at one stage or another and all cut the dividend instead.

BHP’s likely disappearance from the FTSE 100 in 2022, when it adopts a Standard rather than a Premium listing and makes its primary base Australia, is another factor for investors to ponder, at least if they are seeking to glean yield from index-tracking funds.

  2021 E
Dividend yield (%)
2021 E
Dividend cover (x)
2021 E
Pay-out ratio (%)
Cut in last decade?
Evraz 17.9% 1.33 x 75% 2012, 2013, 2014, 2020
Rio Tinto 17.8% 1.28 x 78% 2016
BHP Group 11.3% 1.03 x 97% 2016, 2020
Anglo American 9.5% 1.94 x 52% 2015, 2016, 2020
Imperial Brands 9.0% 1.67 x 60% 2020
M & G 8.9% 0.27 x 366% No (listed in 2019)
Persimmon 8.4% 1.07 x 94% 2014, 2019
Admiral Group 8.3% 1.16 x 86% 2013, 2017, 2019
British American Tobacco 8.1% 1.43 x 70% No
Phoenix Group 7.3% (0.77 x) (130%) 2016, 2018

Source: Company accounts, Marketscreener, analysts’ consensus forecasts, Refinitiv data

Dividend aristocrats

The strongest long-term performance often comes from those firms that have the best long-term dividend growth record, rather than being the highest-yielding stock. Regular dividend growers can provide the dream combination of higher dividends and a higher share price as the increased distribution will over time drag the share price higher through sheer force. A 1p per share dividend on a 100p share price may not catch the eye, but if that dividend reaches 10p in a decade’s time it almost certainly will.

The ravages of the pandemic and the recession have taken their toll on the ranks of FTSE 100 firms that can point to a ten-year dividend growth track record. One year ago, 24 firms were on this list. That number has since dwindled to 15 even as National Grid and United Utilities joined this elite grouping in 2021.

Hikma Pharmaceuticals is working on a nine-year dividend growth streak and will therefore be looking to rack up a tenth and join this list in calendar 2022.

Even allowing for the potential changes and deletions to the list of dividend-growers over time, those that managed to maintain their proud runs in 2020 have been tremendous long-term investments.

The average capital gain from the 15 ten-year dividend growers is 681% and the average total return is 863%. Both easily beat the FTSE 100, at 31% and 92% respectively.

  Total return Dividend CAGR* Forecast dividend growth**  
  2011-2021 2011-20 2021 E 2022 E
Ashtead 4937.9% 29.3% 13.9% 12.5%
Intermediate Capital 1403.0% 12.0% 12.5% 14.3%
London Stock Exchange 1084.4% 11.9% 18.7% 15.7%
Scottish Mortgage 1039.9% 3.6% 3.8% 4.2%
Spirax-Sarco Engineering 952.4% 10.6% 13.6% 6.0%
Halma 921.8% 6.8% 7.6% 10.5%
Croda 508.4% 10.0% 16.5% 5.7%
RELX 480.6% 8.7% 4.3% 8.2%
DCC 398.1% 10.2% 7.0% 5.8%
Hargreaves Lansdown 296.9% 17.3% -12.9% 9.1%
Sage 267.0% 8.3% 1.7% 2.6%
Diageo 263.4% 6.3% 3.8% 3.4%
United Utilities 179.2% 3.7% 1.2% 2.3%
National Grid 161.6% 3.1% 1.7% 2.0%
British American Tobacco 54.6% 6.6% 0.6% 5.5%
         
Average 863.3% 9.9%    
FTSE 100 91.8% 5.0% 36.2% 1.1%

Source: Refinitiv data, Company accounts. *Compound annual growth rate. **Source: Marketscreener, consensus analysts’ forecasts

Dividend growth is so powerful because it almost inevitably drags a share price higher.

The average dividend yield for the 15 ten-year raisers is forecast to be 2.4% in 2021, below the 4.1% average across the FTSE 100. But their below-average yields have hardly proved a barrier to excellent total returns over the subsequent ten years.

That is at least partly because, the dividend yield available on the September 2011 share price using forecast 2021 dividends is 9.9% - and if anyone offered an investor a guaranteed 9.9% dividend yield they would probably snap your hand off, so that shows how a rising dividend can lift a share price, boosting income and capital gains for a powerful total return.

  2021 yield on Sept 2011
share price
2011 yield on Sept 2011
share price
Ashtead 29.7% 2.5%
British American Tobacco 7.7% 4.5%
Croda 4.7% 2.8%
DCC 10.1% 4.0%
Diageo 5.7% 3.3%
Halma 5.1% 2.8%
Hargreaves Lansdown 10.9% 2.8%
Intermediate Capital 24.6% 8.3%
London Stock Exchange 9.3% 3.3%
National Grid 7.9% 6.3%
RELX 9.5% 4.4%
Sage 6.6% 2.8%
Scottish Mortgage 2.5% 1.7%
Spirax-Sarco Engineering 6.4% 2.3%
United Utilities 7.2% 5.0%
Average 9.9% 3.8%

Source: Refinitiv data, company accounts, Marketscreener, consensus analysts’ forecasts

View our Dividend dashboard for Q3

Every quarter, we produce our 'Dividend dashboard' - a forecast of dividend payouts for FTSE 100 companies.

These articles are for information purposes only and are not a personal recommendation or advice. Forecasts aren't a reliable guide to future performance. Past performance isn't a guide to future performance, and some investments need to be held for the long term.


russmould's picture
Written by:
Russ Mould

Russ Mould has 28 years' experience of the capital markets. He started at Scottish Equitable in 1991 as a fund manager and in 1993 he joined SG Warburg, now part of UBS investment bank, where he worked as equity analyst covering the technology sector for 12 years. Russ joined Shares in November 2005 as technology correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media by AJ Bell Group, he was appointed AJ Bell’s Investment Director in summer 2013.