More than two-thirds of the firms that make up the FTSE 100 are expected to see their dividend yields rise in 2020, according to new research from The Share Centre (TSC).
The stockbroker said that an underperformance in the year to date for the blue-chip index, which is currently 15% lower than its US counterpart, the S&P 500, combined with a weak pound and unchanged dividend forecasts made the UK “very attractive in terms of headline dividend yields”.
The top three highest yields in 2019 came from miner Evraz PLC (LON:EVR), British Gas owner Centrica PLC (LON:CAN) and tobacco firm Imperial Brands PLC (LON:IMB), although all three suffered share price declines in the year, while in terms of total value the big divi payers were oil majors Royal Dutch Shell PLC (LON:RDSB) and BP PLC (LON:BP.) as well as miners BHP Group PLC (LON:BHP) and Rio Tinto plc (LON:RIO).
However, TSC said while the UK is currently a “ripe hunting ground for investors seeking high-yielding companies”, factors such as dividend cover, free cash flow and the net debt to earnings (EBITDA) ratio should be considered when gauging the sustainability of a dividend.
With this in mind, housebuilder Bellway PLC (LON:BWY) was singled out as a “solid and potentially suitable pick for income seeking investors”, with its dividend next year forecast to grow by just over 5.5% provided the housing market managed to weather the ongoing political and economic uncertainty.
Wary of dividend concentration
One cautionary note from TSC going into 2020 was that while FTSE 100 dividends were due to rise, the increase will likely rely on “a small number of stock to generate the bulk of UK dividends”, with 55% of blue-chip payouts in 2019 coming from only ten companies.
“Investors need to be cognisant of this high degree of concentration”, they said, particularly given the average dividend cover of these firms was around 1.25, lower than the FTSE 100 average of 1.51 and well below the ideal threshold of two.
The prospect of divi rises also did not mask the consensus that dividends in 2020 are expected to grow at their slowest annual rate since 2010, something of a reset for the new decade.