FTSE 100 dividends: the top 10 yields

FTSE 100 companies are expected to return a total of £78.7bn in 2023 to shareholders via dividends, according to AJ Bell’s latest Dividend Dashboard. The report considers the highest dividend yields in the FTSE 100 and can be a good place to start when looking for investments. 

This figure has been downgraded from earlier forecasts thanks to fears of a recession, rising interest rates and volatile commodity prices.  

FTSE 100 dividends feel the heat 

At the end of 2022, AJ Bell’s analysts were projecting a record dividend haul from FTSE 100 companies, surpassing the all-time high of £85.2bn returned in 2018. 

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Falling profits across the blue-chip index are to blame for lower income projections. 

“Pre-tax profits across the FTSE 100 are expected to rise by 10% in 2023, a cut from the 19% growth estimate of just three months ago, thanks in the main to reduced profit forecasts at the miners, where China’s economic woes weigh heavily upon sentiment.” AJ Bell’s Dividend Dashboard report explains. 

However, while falling profit forecasts are “cutting into dividend estimates” even the “4% dividend growth in 2023 would handily outpace the expected 13% drop in adjusted net income.”

Companies may be scaling back dividend plans, but they’re ramping up share buybacks as an alternative way to return cash to investors. 

“FTSE 100 firms have to date announced £46.6bn of share buybacks in 2023,” explains the report. “That already exceeds the peaks of 2006 and 2018, which came in between £33bn and £34bn and leaves 2022’s record high of £58.2bn within reach, with three months to go,” it adds.

With that in mind, here’s a list of the companies with the ten highest dividend yields in the blue-chip index. 

The highest dividend yields in the FTSE 100 

 *Refinitiv broker estimates 

 Can investors trust these companies to deliver?  

This list is dominated by companies in the financial services sector. Pension giants Phoenix, M&G, Legal & General and Aviva, all offer inflation-beating dividend yields. 

These businesses are more likely to offer sustainable dividends than most as they’re highly regulated. Therefore, they’ll only pay what they can afford to and are allowed to by the regulator. Also, cash flows from the management of pension assets and insurance products offered are relatively predictable over the long term. This means management has a lot more visibility over cash flows and can set dividends accordingly. 

The outlook for other companies on the list is a bit more uncertain. Banks HSBC and Natwest benefit from higher interest rates, which means they can charge more to borrowers. However, if the economy starts to stutter, they may have to deal with higher loan write-offs in their portfolio. They’re also likely to have to pay out higher rates of interest to savers to keep their business. This could hit profit margins and force the lenders to reduce shareholder returns to focus on profits. 

Tobacco giants Imperial and British American have their own set of problems. These companies are highly cash-generative, but sales are under pressure from declining smoking rates around the world and both have a lot of debt. These borrowings have become a lot more expensive in the current interest rate environment. 

Vodafone is in the same situation. It has a lot of debt and high capital spending requirements, which will continue to put pressure on its dividend. 

Finally, Taylor Wimpey’s cash return plans are dependent on the UK housing market. If house prices continue to fall, the builder might have to cut its dividend to preserve cash. Still, with the country’s housing market structurally undersupplied, demand for its properties could remain robust. 

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