The ten highest dividend yields in the FTSE 100

Rupert Hargreaves takes a look at the companies with the highest dividend yields in the UK’s blue-chip index

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 

According to AJ Bell’s Dividend Dashboard, total dividend payments could hit a new record in 2023. The broker is projecting a total payout of £85.8 billion to investors for the year, up from £79.1bn in 2022. 

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

Overall, the dividend yield on the FTSE 100 stands at around 3.8%. 

However, there’s no certainty that this projection will turn out to be correct. AJ Bell was forecasting £85 billion of dividends for 2022, but higher costs and falling sales have forced companies to reconsider their payment plans. 

Still, the pre-tax income of the index’s constituents is expected to grow by 10% in the year ahead, and with dividend cover rising to 2.24 (also one of the best figures in recent years), there’s plenty of room for companies to maintain or grow their payouts to investors in 2023. 

Here’s a list of the ten highest-yielding stocks in the FTSE 100.  

Company

Dividend per share for 2022*

Dividend per share for 2023*

Forward dividend yield (%) (2023)

Dividend growth (%)*

Forward p/e*

M&G (LSE: MNG)

19.4p

20.3p

9.9

4.4

12

Vodafone (LSE: VOD)

9.1c

8.7c

8.3

-4.4

10

Phoenix Group (LSE: PHNX)

49p

52.1p

8.3

6.4

8.1

Aviva (LSE: AV)

32.8p

35.5p

8.1

8.1

8

Legal & General (LSE: LGEN)

19.4p

20.5p

8

5.2

7.4

Glencore (LSE: GLEN)

$0.54

$0.57

7.9

5.2

6.7

British American Tobacco (LSE: BATS)

232p

247p

7.9

6.3

7.8

Persimmon (LSE: PSN)

185p

108p

7.8

-42

5.7

Taylor Wimpey (LSE: TW)

9.4p

8.7p

7.7

-7.7

5.8

*Refinitiv broker estimates

The top income stocks in the FTSE 100

Housebuilders and resource stocks dominate the list of the highest-yielding stocks in the FTSE 100. 

Housebuilders have fallen out of favour with investors this year as interest rates have lurched higher, and the outlook for the UK housing market has deteriorated

As investors have dumped these stocks, their yields have moved higher (dividend yields and equity prices have an inverse relationship), but this could be a warning sign for income investors. 

FTSE 100 income champion Persimmon has recorded a near 50% decline in its share price over the past 12 months as earnings projections have been downgraded and the company’s dividend is now under pressure. Management has revisited the group’s capital return plan and the City has revised its dividend projections much lower. 

A couple of months ago analysts had pencilled in a dividend per share of more than 200p for 2022 and 2023. Now the projection is just 108p for 2023. That’s a big revision. 

So, while homebuilders might look like great income plays today, investors should approach them with caution. Further downgrades could be on the horizon

As AJ Bell notes, “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.”

A cloud of uncertainty also hangs over Vodafone. The company’s growth has slowed to a halt and it’s drowning in debt. With interest rates on the up, it’s going to become harder for the business to maintain its payout and invest for growth. 

“Often defending a high yield can be a burden for a firm, as it sucks cash away from vital investment in the underlying business,” AJ Bell notes. 

Profits boom at resource companies 

Glencore is benefiting from booming commodity markets, and as profits surge, it’s planning to return as much cash as possible to its investors. 

The oil-to-wheat producer and trader reported a 170% jump in profits last year, mainly thanks to higher energy prices. 

Still, as AJ Bell notes, “The oil and gas sector is giving support to dividend growth estimates for 2023, although this may make some investors nervous as oil threatens to close out 2022 where it started the year, at below $80 a barrel.”

Glencore’s distribution is projected to fall slightly in 2023 after 2022’s bumper payout. 

Finally, financial services companies Phoenix, Legal & General and M&G all look cheap, but they all have their own challenges. 

Still, as some of the largest pension and asset managers in the country, they have a large and stable market. Long-term income investors might want to keep an eye on these firms. 

The author of this article owns shares in Phoenix and British American Tobacco.

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