Top FTSE 100 Dividend Paying Stocks

UPDATED for July 2022: Earnings season is in full swing, with plenty of dividend news to catch up with

James Gard 29 July, 2022 | 10:58AM Sunniva Kolostyak
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Dividend

Earnings season is in full swing and we’ve had plenty of dividend updates from the FTSE 100’s big income hitters. Centrica (CNA) has been the highlight this month in terms of positive newsflow, as the British Gas owner has just restored its dividend after a two-year hiatus amid record profits.

In terms of our moatworthy, high yield list, usually the Imperial Brands (IMB) and British American Tobacco (BATS) are rooted to the number one and two slots, but this month Vodafone (VOD) has disrupted their dominance by shifting to number two in terms of forward/expected yield. Still, there’s barely a cigarette paper between Vodafone and BATS in terms of yield, with 6.32% and 6.27% respectively.

To start with BATS, the cigarette and vaping company had already announced its dividend timetable in February. An interim dividend of 217.8 pence is payable in four equal quarterly instalments of 54.45p in May, August, November and February 2023. Pre-tax profits for the last six months fell 30% to £3.06 billion from £4.38 billion as costs rose – and the company took a hit of nearly £1 billion from its withdrawal from Russia.

July 2022 Update

We’ve updated the monthly list to include the latest dividend announcements. (Some of the companies, such as BT (BT.) and Vodafone, have put out trading updates without any dividend news.) More corporate news is on the way soon, with HSBC (HSBA), Pearson (PSON), Sage (SGE) and London Stock Exchange (LSEG) due to report in the first week of August.

Among those announcing dividend increases in the latest earnings season are Lloyds Banking Group (LLOY), BAE Systems (BA.) and RELX (REL). And Schroders (SDR), GSK (GSK), Unilever (ULVR), Reckitt (RKT) and Smith & Nephew (SN.) have held their payouts at previous levels.

Hopefully you know the drill by now: to make it on to our monthly list, companies need to have a narrow or wide economic moat, pay a dividend and have a forward yield of 2% or more. And they have to be in the FTSE 100. Of the 33 stocks which make the grade on these criteria, only 21 have a yield above 2%. RELX just makes the cut, but wide-moat drinks giant Diageo (DGE) just misses the cut with a 1.98% yield.

Last month I posed the question: is 2% too low a hurdle for dividend yields, given inflation above 9% (and rising) and UK government bonds with a yield just under 2% across two, five and 10 year maturities? Some 13 companies on our monthly list yield above 3% and just seven yield above 4%. This is a function of setting higher hurdles for each stock – I start with 100 stocks, remove ones without economic moats, etc. At the annual Morningstar Investment Conference, M&G’s Stuart Rhodes says he looks for stocks yielding between 3% and 4%.

I have looked at the concept of recession-resilience in my latest article. My colleague David Harrell, who is the editor of the monthly Morningstar Dividend Investor, says that there are two silver linings in this year’s market volatility: one, that dividend payers have held up better than more growth-focused stocks (investor want cash now rather than at some vague point in the future); and the other that is valuations are lower, meaning income investors can pick up companies cheaper than last year.

“There are still bargains to be had in the dividend-paying universe,” Harrell says of the US market. In our UK cohort, 13 out of 22 stocks are considered undervalued, with the vast majority of these rated as 4-star stocks. Just under half of the companies on the list are cheaper than they were at the start of the year – and Schroders, WPP (WPP), Intertek (ITRK) and CRH (CRH) are around a quarter down since January 2022.

Only two of the shares on our list are overvalued, according to Morningstar metrics, and one is defence firm BAE Systems, whose shares are up 41% in the year to date as governments scale up military spending.

All Hail, Haleon

As this dividend screen is focused on the FTSE 100, it’s worth noting the addition of a new name to the elite list of stocks: Haleon (HLN), GlaxoSmithKline’s s consumer healthcare division, joined the LSE on July 18. GSK shareholders received one Haleon share for every one GSK stock held. “We think Haleon will have solid competitive positioning, as evidenced by its well-recognised portfolio, including a leading position in five global categories,” says Morningstar pharma analyst Damien Conover.

GSK has just put out Q2 results, in which it announced a payout of 16.25p, with an unchanged full-year dividend of 61.25p expected (there are two quarters left of this financial year).

GSK rather than Haleon is going to take the strain in terms of income going forward, as laid out in the 2021 investor update when a progressive dividend policy was announced (between 40% and 60% payout ratio). GSK is expected to pay 49p per share in 2022 and 45p in 2023. The company has paid the same quarterly dividends since 2014, when the pattern of three 19p payments followed by one 23p payment has held; 80p in total has become metronomic for a number of years. What’s happened is that GSK shareholders have traded off some dividend certainty for some more exciting growth opportunities in owning Haleon shares – if they just want the pure pharma exposure with income, GSK shareholders could just sell their Haleon shares.

Conover says: “We believe the demerger stands to create value for current GSK shareholders, as the remaining GSK company (after the Haleon divestment) should hold faster growth potential, and Haleon should gain a higher valuation multiple (as consumer product firms tend to trade at higher multiples than Big Pharma stocks). In our view, the demerger (slated to take place on July 18) will allow new GSK to focus purely on biopharmaceuticals and vaccines.”

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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
Admiral Group PLC2,234.00 GBX0.81Rating
AstraZeneca PLC10,506.00 GBX-2.88Rating
BAE Systems PLC790.40 GBX0.10Rating
BP PLC427.55 GBX1.50Rating
British American Tobacco PLC3,318.50 GBX1.19Rating
BT Group PLC158.00 GBX-0.47Rating
Burberry Group PLC1,797.50 GBX-0.11Rating
Centrica PLC77.76 GBX-2.21Rating
CRH PLC3,207.00 GBX-0.59Rating
Diageo PLC3,832.50 GBX-0.76Rating
HSBC Holdings PLC548.90 GBX0.72Rating
Imperial Brands PLC1,880.00 GBX0.70Rating
Intertek Group PLC4,217.00 GBX-0.38Rating
Johnson Matthey PLC2,212.00 GBX-1.16Rating
Meggitt PLC793.00 GBX0.13Rating
Reckitt Benckiser Group PLC6,542.00 GBX-0.37Rating
RELX PLC2,376.00 GBX-1.45Rating
Schroders PLC3,012.00 GBX-0.07
Shell PLC2,213.50 GBX2.03Rating
Vodafone Group PLC121.22 GBX0.00Rating
WPP PLC822.00 GBX0.86Rating

About Author

James Gard  is senior editor for Morningstar.co.uk