FTSE 100 firms on track to pay £85bn in dividends & could surpass record set in 2018

Writer,

The FTSE 100 is now expected to yield 4.2% in 2022, thanks to the combination of share price falls and increases in dividend forecasts. The index’s total dividend pay-out is expected to reach £85 billion in 2022 excluding special dividends, up from £78.5 billion in 2021.

It means total payments could surpass 2018’s record, although the current expectation is that they come in just shy of the £85.2 billion record.

FTSE 100 firms on track to pay £85bn in dividends & could surpass record set in 20

Source: Company accounts, Marketscreener, analysts’ consensus forecasts

The number of firms expected to pay a dividend this year is also on the up. There are 97 FTSE 100 firms expected to pay a dividend in 2022, against 91 in 2021 and 85 in 2020, as corporate confidence continues to return after the pandemic. And despite concerns over increases to input costs, interest rates (and therefore the cost of capital) going up, as well as increases in taxes for 2023, analysts are still nudging up their dividend payment forecasts.

This is in addition to share buybacks having already hit a new record this year, with £36.7 billion of buybacks announced in the first three months of 2022. This exceeds the total for 2021 and indeed the 2018 all-time high buybacks figure for the index of £34.9 billion.

Top 10 – the firms forecast to have the highest yields in 2022

Rio Tinto is currently forecast to be the highest-yielding company this year, closely followed by Persimmon and then Glencore. All of them are expected to yield in excess of 10%.

Those forecast yields sound attractive but investors should take note of the records of firms previously expected to generate such bumper payouts. Firms including Vodafone, Shell, Evraz, Centrica, Royal Mail and Marks & Spencer were all due to pay a dividend over 10% as a FTSE 100 firm at one time or another. Instead, they cut the dividend, demonstrating nothing can be taken for granted, especially if a recession hits.

  Dividend yield (%) 2022E
Dividend cover (x)
Pay-out ratio (%) Cut in last decade?
Rio Tinto 13.5% 1.28 x 78% 2016
Persimmon 12.3% 1.09 x 92% 2014, 2019
Glencore 11.6% 1.97 x 51% 2013, 2015, 2016, 2020
M & G 9.8% 1.00 x 100% No
abrdn 8.5% 0.75 x 133% 2020
Taylor Wimpey 8.3% 2.80 x 36% 2019
Barratt 8.1% 1.67 x 60% 2020
Phoenix Group 7.9% 0.48 x 208% 2018
Aviva 7.9% 1.36 x 73% 2012, 2013, 2019
Imperial Brands 7.5% 1.59 x 63% 2020

Source: Company accounts, Marketscreener, analysts’ consensus forecasts, Refinitiv data. Ordinary dividends only

Dividend heroes list dwindles

In fact, history tells us that it isn’t necessarily the highest-yielding stocks that prove to be the strongest long-term investment. The best performance often comes from those with the most consistent long-term dividend growth record.

These firms offer the dream combination of higher dividends and a higher share price – the increased distribution will over time drag the share price higher through sheer force. For instance, a 1p per share dividend on a 100p share price may not catch the eye today, but if that dividend reaches 10p in a decade’s time it almost certainly will.

Sadly, the ravages of the pandemic and the economic climate have led to a rout in the number of FTSE 100 firms able to boast a ten-year dividend growth track record. Two years ago, 24 firms were on this list. That number has since dwindled to 17 even as National Grid, United Utilities, Dechra Pharmaceuticals and Hikma Pharmaceuticals joined this elite grouping in 2021.

17 firms boast a ten-year track record of rising dividends:

  Total return
2012-2022
Dividend CAGR*
2012-21
Ashtead 1472.5% 22.7%
Intermediate Capital 949.7% 14.3%
London Stock Exchange 812.1% 12.9%
Dechra Pharmaceuticals 662.6% 12.7%
Scottish Mortgage 488.4% 2.5%
Spirax-Sarco 483.1% 9.9%
RELX 451.8% 8.0%
Halma 428.3% 6.1%
DCC 283.3% 10.5%
Croda 252.8% 5.3%
Sage 216.4% 5.7%
National Grid 185.3% 2.2%
United Utilities 185.1% 2.5%
Diageo 184.9% 5.2%
Hikma Pharmaceutical 160.0% 14.5%
Hargreaves Lansdown 115.6% 10.8%
BAT 82.0% 4.9%
     
Average 436.1% 8.9%
FTSE 100 85.0% 4.6%

Source: Refinitiv data, Company accounts. *Compound annual growth rate

This elite group have been tremendous long-term investments. The average capital gain from the seventeen ten-year dividend growers is 311% and the average total return is 436%. Both easily beat the FTSE 100, at 27% and 85% respectively.

The charms of these seventeen names are now well understood and they often fall into the ‘quality’ bucket of many portfolios. But ‘quality’ does not guarantee safety if the valuation paid to access the cash flow and dividend streams is too high. Some of these names have suffered a bit of a reckoning in 2022, at least to date, as the twin tides of higher interest rates and lower risk appetite have pushed investors away from expensive, ‘quality’ names that have generally done well for the last decade toward cheaper, ‘value’ names that have generally performed poorly. Of the seventeen serial dividend growers, only one – BAT – is in the top ten performers within the FTSE 100 this year to date.

Concentration risk remains high

Concentration risk is critical when it comes to dividends, an issue which has for some time dogged those who have sought income from the UK stock market.

Just ten stocks are forecast to pay dividends worth £47.7 billion, equating to 56% of the forecast total for 2022. Go a little further down the list and you see that the top 20 are expected to generate 74% of the total index’s pay-out, at £62.5 billion.

Anyone who believes the UK stock market is attractive on a yield basis needs to have a good understanding of those 20 names in particular.

20 biggest dividend payers account for 74% of total FTSE 100 payout:

 

2022 E

  Dividend (£ million) Dividend yield (%) Dividend cover (x) Cut in last decade?
Rio Tinto 8,733 13.5% 1.28x 2016
Glencore 7,094 11.6% 1.97x 2013, 2015, 2016, 2020
Shell 5,898 3.7% 4.53x 2020
BAT 5,154 6.3% 1.43x No
HSBC 4,479 4.1% 1.57x 2019, 2020
Unilever 3,728 3.9% 1.24x No
AstraZeneca 3,650 2.2% 1.11x No
BP 3,366 4.3% 3.00x 2011, 2020
Anglo American 2,987 7.0% 2.33x 2015, 2016, 2020
GSK 2,631 2.9% 2.06x No
Vodafone 2,161 6.0% 1.00x 2018
National Grid 1,932 5.0% 1.72x No
Diageo 1,736 2.1% 1.84x No
Lloyds 1,553 5.1% 2.67x 2019, 2020
Barclays 1,336 5.0% 3.25x 2016, 2019, 2020
Imperial Brands 1,331 7.5% 1.59x 2020
NatWest Group 1,306 5.5% 1.84x 2019
Reckitt Benckiser 1,259 2.8% 1.74x No
Legal & General 1,126 7.5% 1.68x No
RELX 1,017 2.4% 1.55x No

Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Ordinary dividends only

For investors seeking some dividend security, looking for stocks with dividend cover of 2.0 or over could be ideal because it means profit is double the amount the company is paying out to shareholders In contrast, Dividend cover of below 1.0 should ring alarm bells because it means the company is paying out more than it makes in that year. This means it has to dip into cash reserves, sell assets or borrow money, which is unlikely to be sustainable over the long term.

View our Dividend dashboard for Q2

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.