In this never-ending low-interest-rate environment, Peel Hunt has once again asked the evergreen question: where to find the best dividends?
“With the dust settling a bit on the pandemic, we are now able to see what the dividend profile looks like for much of the market in the next couple of years,” the broker said in a research note.
The broker reckons this year will see companies pay out an aggregate of £100bn or so in dividends, down from around £121bn in 2018 (before the dreaded coronavirus reared its ugly head).
By 2023, the divi total is expected to have edged up to around £104bn, with around half of the FTSE 100 companies expected to be paying bigger dividends than they coughed up in 2018/19, while the expectation is that FTSE 250 companies will be a bit more parsimonious, with just 40% or so tipped to be paying higher dividends than in the pre-pandemic era.
Peel Hunt’s number crunching and forecast foraging suggest investors are better off with the FTSE 100 companies rather than FTSE 250 companies when going dividend hunting, while the FTSE 250 companies are a better bet (on average) than AIM companies.
The broker is expecting the FTSE 100 to yield an average of 3.3% v 2.3% for the FTSE 250 and 1.5% for AIM companies. The average dividend cover (earnings per share divided by dividend per share) is expected to be 2.1, 2.1 and 5.5 respectively.
Fast-forward to next year and the numbers change to: FTSE 100: 3.5% (cover of 2.5); FTSE 250: 2.7% (2.3); AIM: 1.5% (2.4).
On a sector basis, next year should see the Utilities (5.4%), Oil & Gas (4.8%), Insurance (4.6%), Real Estate (4.0%) and Financials (3.9%) occupy the top five slots, with average dividend covers of 1.7, 2.5, 2.4, 1.3 and 2.3 respectively.
Technology (1.0% and cover of 2.4) and Healthcare (1.0% and cover of 1.9) are bottom of the pile, even lagging the battered retail and travel sectors, where the average yields and cover ratios are expected to be 1.5%/2.1 and 1.5%/0.6 respectively.
All of which is fine and dandy but you want to know specific companies, right?
Based on forecast dividends for 2022, the five FTSE 100 companies set to show the biggest rise since 2018/19 are Antofagasta PLC (LON:ANTO), +258%; Polymetal International PLC (LON:POLY), +216%; Berkeley Group Holdings PLC (LON:BKG), +112.5%; Anglo American PLC (LON:AACP), +83.5%; and CRH PLC (LON:CRH), +60.3%.
Blue-chip companies whose dividends have collapsed for one reason or another are Rolls-Royce Holdings PLC (LON:RR), projected to be down 97% in 2022 from its 2018/19 high; Prudential PLC (LON:PRU), down 73%; InterContinental Hotels Group PLC (LON:IHG) down 65%; Royal Dutch Shell PLC (LON:RDSB), down 61%; and BT PLC (LON:BT.A), down 52%.