Top FTSE Dividend Paying Stocks

UPDATED for January 2022: Our first round-up of the year looks at the latest earnings updates and the share price performance for last year

James Gard 19 January, 2022 | 11:00AM Sunniva Kolostyak
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This is the first dividend round-up of 2022 and it comes as FTSE 100 companies start to update the market on their performance at the end of last year. Investors will be hoping of “more of the same” from the big income payers, with the raised ordinary dividends and bumper special payouts of 2021. One of the most generous blue-chip companies in recent years in income terms, Tesco, has just reported a strong Christmas period.

Our monthly list has been refreshed but the tobacco companies British American Tobacco (BATS) and Imperial Brands (IMB) remain wedded to the top one and two slots with yields of more than 7% and 8% respectively. Vodafone (VOD) makes up the “best of the rest” with a yield of 6%.

Of the FTSE 100 companies covered by Morningstar, 36 have a wide or narrow economic moats and 32 of those pay a dividend. On our list so far we’ve had trading updates from Burberry and Experian. The credit ratings company is due to pay its first interim dividend of $0.16 on February 4, and the payout in the same period last year was $0.145. The next payment is due at the end of July, if the calendar follows the same trend as in 2021.

While we’re still early in 2022, some of the names on our list have already made a strong start to the year. HSBC (HSBA) and Lloyds Banking Group (LLOY) have posted gains of around 10%, building on the strong performance in 2021. The move comes as UK banks crank the dividend machines back up again and as central banks turn hawkish – rising interest rates provide a benign environment for banks, whose profit margins rise increase in tandem with the base rate.

And British American Tobacco is up around 12% this year, which means it’s no longer one of the three UK stocks that Morningstar analysts rate as 5 stars, or significantly undervalued – the others being Imperial Brands and Just Eat Takeaway (JET), the delivery company that is yet to pay a dividend. BATS is now a 4-star stock with a fair value estimate of £40, but is trading at £31 per share. Cigarettes are also considered to be inflation-resistant too. In frank terms, addicts find it hard to quit and are not that price sensitive. “In most markets, the smoking rate is in only a very modest decline, implying that the majority of smokers attempting to quit fail to do so,” says Morningstar analyst Philip Gorham. Smokers who prefer premium brands are also less likely to quit, academic research shows.

 

Something else may be going on than just “boring stocks” having their day in the sun, argues Thomas Moore, manager of the ASI UK Income Unconstrained and ASI Income Focus funds. Companies with lots of cash are back in favour, he says, as investors shorten their time horizons as soaring inflation makes for a very uncertain time for equity and bond markets. “Yield means something,” he says.

The very wide dispersion in returns last year undermines the idea the income stocks are “safe and steady” performers. The best performing company on the list rose nearly 54% (Croda) while the worst performer was London Stock Exchange, which fell around 20%. Gone are the days when income investors took the dividend and didn’t worry too much about the share price; capital growth is an important part of many investors’ total return considerations. Some 24 of the companies on the list posted positive gains in 2021, and 18 of these were in double figures.

One for the Diary

The new tax year may seem a long way off, but new dividend rates for shares held outside of Isas will come into effect in April 2022. The dividend rate is going up by 1.25 percentage points to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

A Note on Methodology

In October 2021 we changed the regular dividend screen and upgraded the table so that it is interactive and sortable. The criteria remain the same – a stock has to be in the FTSE 100, have a wide or narrow economic moat, with a forward dividend yield of 2% or higher.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC8,828.00 GBX1.09Rating
BAE Systems PLC599.20 GBX0.13Rating
Burberry Group PLC1,883.50 GBX0.91Rating
CRH PLC3,842.00 GBX0.39Rating
HSBC Holdings PLC507.95 GBX-0.89Rating
Intertek Group PLC5,382.00 GBX0.34Rating
Reckitt Benckiser Group PLC6,412.00 GBX0.72Rating
RELX PLC2,284.00 GBX1.06Rating
Schroders PLC3,448.00 GBX0.85Rating
WPP PLC1,207.50 GBX0.12Rating

About Author

James Gard  is content editor for Morningstar.co.uk