The ten highest dividend yields in the FTSE 100

The FTSE 100 is a market index made up of the 100 largest companies by market capitalisation on the London Stock Exchange, and it is usually used as a benchmark to judge the performance of the UK equity market.  

The index is also usually the first port of call for income investors. We look at the 10 highest dividend yields in the FTSE 100.

Cash returns surge in the FTSE 100

Four months ago, AJ Bell’s Dividend Dashboard was forecasting a bumper year for income investors in 2023. However, thanks to economic headwinds, rising interest rates and falling commodity prices, the broker has revised its numbers. 

FTSE 100 companies paid out £79.1bn in dividends last year, and AJ Bell was projecting total distributions of £85.8bn this year. That’s now been revised down to £84.8 billion based on City analyst projections. 

Still, dividends are close to a record. The last time the index broke a dividend record was in 2018 when a total of £85.2 billion was paid out to investors.

The largest dividend payers (in terms of the total distribution amount not yield) were HSBC, Shell and British American Tobacco. The top ten payers in the index are forecast to generate 55% of the total in the year ahead. 

 “After the index’s spring stumble, the FTSE 100 is now expected to yield 4.2% in 2022, with the index’s total dividend pay-out expected to come in at £76.4 billion, before going on to reach £84.8 billion in 2023, excluding special dividends,” notes AJ Bell’s investment director Russ Mould. 

However, while the total dividend outlay is expected to come in below initial forecasts this year, 2024 could be a dumper year for income investors.  

“If those estimates are correct, the FTSE 100 will not quite match 2018’s record ordinary dividend payment in 2023, but the index will then exceed it and set a new record in 2024,” adds Mould. 

One way to buy exposure to this growth is to buy a basket of the highest-yielding stocks in the FTSE 100.  

*Refinitiv broker estimates

The top income stocks in the FTSE 100

This list of the top-income stocks in the FTSE 100 is dominated by financial services companies.

M&G has the highest yield in the blue-chip index - a dividend yield of 10.2% for 2023 (based on current analyst projections). 

However, as the dividend is only just covered by earnings per share, this distribution appears to have weak foundations. 

Insurance and long-term savings providers Phoenix and Legal & General, sit second and third on the list of the highest-yielding stocks in the FTSE 100. One of their peers, Aviva, also sits on the list with a yield of 7.8%. All three have a good track record of maintaining distributions to investors, and they are conservatively run companies, suggesting they are not paying out more than they can afford. 

With higher levels of dividend cover and stronger cash flows, Phoenix, Aviva and Legal & General all appear to be better income buys than M&G. 

The other companies on the list are a bit of a mixed bag. 

Glencore is rolling in money at the moment thanks to booming commodity prices. Still, this industry is highly cyclical, and the company's good fortune may not last forever. And considering the outlook for the UK housing market, I wouldn’t take Taylor Wimpey’s dividend for granted either.

Vodafone is returning a lot of cash to investors, even though the company has some substantial capital spending obligations. This could reduce the group’s ability to increase its dividend in the years ahead.

Finally, both British American Tobacco and Imperial Brands are tobacco companies with mixed outlooks. The world is smoking less meaning their growth rests on their ability to boost sales of so-called reduced-risk products (e-cigarettes and vapes). 

For that reason, investors may prefer to own some of the other businesses on this list with more predictable outlooks. 

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The author owns shares in British American Tobacco