Following on from the recent theme of “top fives” in the stock market, in this article we give some quick thoughts on the five highest yielding shares amongst the FTSE 100.
Top 5 dividend yielding shares in FTSE 100
Please remember that the highest yielding shares does not necessarily mean that these are the “best” yielding shares; a high yield can indicate several different underlying characteristics, from strong and stable to troubled companies. Sophisticated income investors look for more of a balance between yield and growth in the dividends which is sustainable over the long term.
Based on prospective 1-year yields, taken by a consensus of analysts and sourced from Factset, the top five are:
|B&M European Value Retail SA||9.36|
|British American Tobacco Plc||7.98|
B&M European Value
The discount retailer which entered the top 100 not long ago has done very well recently. Despite being a physical retailer, the fact that it sells food has allowed it to stay open during the pandemic, allowing shoppers to buy other general merchandise as well. In the previous financial year (before the crisis hit) it paid out total dividends of around 8.3p, equating to roughly a 3% yield. With the Covid windfall, it is paying out special dividends, taking the total pay-out to a whopping 61p. Analysts expected the pay-out to normalise in 2022, so the current high indicative yield is very deceptive. Nonetheless, the company has done very well and further troubled times (in the form of income hits to consumers) is likely to drive more shoppers to discount retailers like B&M.
Imperial Brands & British America Tobacco
The tobacco companies have historically been amongst those that investors could rely on for solid and high dividend streams. However, the sector has found it very tough in recent years as sales of traditional tobacco and cigarettes have been in decline due to health and social changes. They have tried to create new product groups such as e-cigarettes which are growing in use, but which can only mitigate but not replace the sales of traditional cigarettes. Both of these companies have seen their shares prices halve since their peak in 2017, but the dividend pay-outs have continued to steadily rise thus the exceptional high yields. However, tobacco smoking is only heading in one direction and should emerging nations such as China and India follow with smoking restrictions as in some Western nations then this plummet will come along sooner and their dividends pay-outs will ultimately follow.
This is the savings and investment management business that recently demerged out of Prudential, the global life and insurance giant. In an ultra-low interest rate world, investors have been placing their money into the stock markets through funds, driving the rise in assets under management for the likes of M&G and their peers and thus fee income. Analysts predict a fairly steady level of earnings per share all the way to 2024 and so investors should expect a steady income stream too.
This has been one of the most volatile shares in the last decade in the FTSE 100, operating in the highly cyclical steel industry with the added political risk of operating in Russia should be enough for most sensible investors to avoid them. 2020, especially in the second half was actually a good year for them, helped along by lower costs. Net profits more than doubled and this should flow through into 2021 too and thus a higher dividend pay-out and yield figure. However, the group’s earnings have been erratic historically, and nothing has changed too much to suggest otherwise for future earnings.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.