Top FTSE Dividend Paying Stocks

UPDATED for April 2022: it's the first of our monthly dividend updates since the end of the first quarter, which means year-to-date return figures start to look more meaningful

James Gard 28 April, 2022 | 9:26AM Sunniva Kolostyak
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Dividend

First-quarter earnings season is in full swing and UK companies are busy updating investors on their performance in the first three months of the year.

Despite the threat from soaring inflation and military conflict, it’s been more of the same for the FTSE 100’s biggest names, with generally upbeat trading statements and results.

The Q1 season is usually relatively light on dividend updates because these tend to come around the time of the interim and annual results. That said, a handful of names on our list have announced new dividend information, and this is often a busy period in terms of payments anyway.

The two tobacco giants remain at the top of the FTSE 100 dividends table in terms of yield, with Imperial Brands (IMB) in the number one slot, with a forward yield of 8.56%. Telecoms firm Vodafone (VOD) isn’t too far behind, with a yield of nearly 6%, despite a 10% rise in the share price this year (share price and yield generally move in separate directions).

To make it on to our list of top dividend paying stocks, companies need to have a narrow or wide economic moat, and a forward yield of 2% or more. This chops the FTSE 100 down to 24, with dividend stalwarts like London Stock Exchange (LSEG) not making the cut because of a sub-2% yield. This month we’ve also outlined the run of payments due in the next few months and a handful of ones that have been paid already.

In terms of new developments, Smiths Group has raised its interim dividend 5% to 12.3p. Pharma company GlaxoSmithKline (GSK), one of the best share price performers so far this year, said it will pay a Q1 dividend of 14p. Due in July, that payment is down from 19p in the same quarter a year earlier. This drop has been flagged to investors after the group’s split into pharma and consumer healthcare. But it’s worth noting that the change marks a break from what was a predictable payment cycle that started in 2014.

Since that year, the first three quarters have paid out 19p per share each time, with a fourth quarter payout of 23p. For a number of years, GSK’s annual payout was 80p. For this financial year that’s expected to be around 52p per share, with the majority of this coming from “new GSK”, the pharmaceutical arm.

In future, the company “will adopt a progressive dividend policy targeting a dividend payout ratio equivalent to 40 to 60% over the investment cycle”. Shareholders will need to hold both sets of shares to get the full benefit of all the combined total, but “new GSK” will be doing most of the heavy lifting. Morningstar analysts think the consumer healthcare divisions could grow faster than the pharma arm, so share price gains may make up for the reduced payouts. The big question for investors is when the dividend will get back to the 80p per share level.

It’s the first of our monthly dividend updates since the end of the first quarter, which means year-to-date return figures start to look more meaningful than they do in, say, February or March. Five stocks have posted double digit returns (excluding income), with defence manufacturer BAE Systems (BA.) and educational publisher Pearson (PSON) both sitting on gains of nearly 30%. At the bottom end of the table are asset manager Schroders (SDR) and building materials firm CRH (CRH).

Another feature of the new quarter is that fund administration company Link has released its latest Dividend Monitor. UK dividends totalled just over £14 billion in the first quarter of 2022, it says, down 25% year on year. That’s largely because Q1 2021’s special dividends were not repeated.

Stripping out BHP’s payouts – because the company shifted its main listing to Australia – Link says dividends were 12% up on an underlying basis year on year. And all sectors increasing underlying payouts in the first quarter of the year, with oil companies showing the biggest growth because of the surge in crude prices.

As well as a quarterly review, Link forecasts a full-year total of £92.2 billion, just 0.8% down on 2021, the year of the income recovery. This is still £4 billion higher than it estimated in January 2022. While UK dividends are expected to be similar to 2021, and there will be less dependence on the special dividends of last year. Still, overall dividends are forecast to fall short of pre-pandemic levels around £100 billion. UK shares are forecast to yield 3.7% over the next year.

Link upgraded its full-year forecasts as 2021 progressed, but there are reasons to be cautious too. The cost of living crisis could cut consumer demand, says Ian Stokes, Link’s managing director of corporate markets, and that is likely to weigh on the FTSE 250 more than the FTSE 100.

Mining dividends are strong for now, but that may be hard to sustain for the rest of the year, says David Smith, Manager of Henderson High Income Trust (HHI).

“Slowing global economic growth could see commodities come under pressure and therefore mining dividends, surging inflation may temper the dividend growth of those companies most exposed to the consumer while some companies are likely to find it harder to continue to offset their own cost pressures with price rises or efficiency savings.”

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 PLC10,250.00 GBX0.06Rating
BAE Systems PLC747.80 GBX-0.98Rating
Burberry Group PLC1,594.50 GBX0.66Rating
CRH PLC3,129.00 GBX-1.23Rating
HSBC Holdings PLC485.90 GBX-1.94Rating
Intertek Group PLC4,867.00 GBX-0.21Rating
Reckitt Benckiser Group PLC6,150.00 GBX-2.94Rating
RELX PLC2,240.00 GBX-2.18Rating
Schroders PLC2,752.00 GBX-4.24Rating
WPP PLC948.20 GBX-2.05Rating

About Author

James Gard  is senior editor for Morningstar.co.uk