Today I’m looking at the dividend prospects of two FTSE 100 favourites and why they’re top picks for dividend yields.
A bankable beauty
Supported by a steady improvement in the British economy, I believe that banking goliath Lloyds (LSE: LLOY) should deliver market-mashing dividends from next year and beyond.
The London firm’s transformation scheme since the dark days of the 2008/2009 financial crisis has been remarkable. Under the guidance of chief executive António Horta Osório, Lloyds has undertaken massive cost-cutting to rebuild its balance sheet. I believe income seekers should be buoyed by the breakneck rise in its capital base – the CET1 ratio galloped to 13.7% in September, up from 13.3% in June and 12.8% last December.
And while Lloyds’ steady asset selling has gone some way to bolstering its capital strength, in my opinion the bank’s de-risking initiative also makes it a far safer selection than previously for those seeking reliable dividend growth.
According to the City, Lloyds is set to shell out a full-year dividend of 2.4p per share in 2015, yielding a very handsome 3.3%. And this figure leaps to 3.7p for 2016 as self-help measures continue to deliver, driving the yield to a gigantic 5.1%. I believe Lloyds is one of the best dividend selections out there, and arguably the most attractive across the entire banking sector.
Pills provider set to purr
Investors should not be fooled into thinking that pharmaceuticals giant GlaxoSmithKline (LSE: GSK) is over the hump when it comes to the problem of patent lapses.
The Brentford company is due to take a massive whack in 2016 with the loss of protection for its sales-driving Advair Diskus product. And adding to the relentless trend of top-line troubles of recent years, GlaxoSmithKline is expected to see earnings tank for the fourth successive year in 2015 as generic competitors turn up the heat.
But thanks to its bubbly product pipeline, I believe the drugs leviathan should make good on its vow to shell out a dividend of 80p per share through to 2017, a projection that creates a vast 6% yield.
Just this month, GlaxoSmithKline received regulatory approval for its Nucala anti-asthma treatment in the European Union and this follows legislative sign-off from testers in the US. The drug is the only interleukin-5 (or IL-5) inhibitor to be approved in Europe and puts it in front of rivals like AstraZeneca who are yet to receive the green light for their own products.
GlaxoSmithKline has plenty of other potential blockbusters up its sleeve spanning six hot growth areas – namely HIV and infectious diseases, oncology, immuno-inflammation, vaccines, respiratory and rare diseases – and the firm plans to have 20 new products submitted for approval by 2020.
And with huge healthcare investment in emerging markets promising to light up demand for these future sales stars, I believe GlaxoSmithKline should keep dividend yields rattling along at colossal levels.