According to the latest Dividend Dashboard from AJ Bell, the FTSE 100 is set to deliver an overall dividend yield of 4.7% for 2019. That’s down a bit from the 4.9% predicted three months previously after share prices had a good start to the year, but it’s still high compared to the index’s long-term yields.
I still reckon we’re in one of the best periods for a long time for stocking up on our favourite dividend shares.
Core company
I’ve always liked National Grid (LSE: NG) as a reliable dividend stock, even if Jeremy Corbyn might have his eyes on nationalising it.
I like utilities in general as their long-term visibility of earnings allows them to allocate a large proportion of earnings for dividends and keep their year-on-year payments reliable.
The downside is that it’s a regulated industry, and it’s more open to competition than it used to be. But bigger suppliers are better, I think, as they have the ability to withstand headwinds better.
And I like National Grid particularly as it’s not an end supplier of energy. It owns and manages the UK distribution networks and provides services to the energy suppliers themselves. Whoever you pay for your electricity and gas, National Grid gets its cut.
International
The company also has significant operations in the US and is expanding, with its latest being the acquisition in March of Geronimo Energy, a clean energy developer based in Minneapolis. The deal cost $100m up front, with possible conditional future payments. It’s also set to invest $125m in solar and wind projects developed by Geronimo.
Dividends are currently forecast at 5.6% and better, but if the FTSE 100 rally continues, those yields should fall.
Cyclical
I’ve always like the aerospace sector as an investment, but you do need patience and a long-term horizon. It can be a very cyclical sector, and the lengthy nature of contracts means that earnings can be erratic on a year-by-year basis.
If you get twitchy over short-term volatility, I’d say don’t buy BAE Systems (LSE: BA) shares. But if you’re the kind of person who can buy shares and forget about them for a decade, I think it’s worth a close look.
BAE shares have been in a bit of a down cycle over the past couple of years, and that’s pushed forecast dividend yields to 4.8% this year and 5% next. I’d expect BAE yields to average around 4% over the long term, and I see this as an indication that the shares could be undervalued now.
Fall
My colleague G A Chester sees political factors behind the BAE price fall, and with big-spending Saudi Arabia so often in the news for less-than-favourable reasons, I’m sure he’s right. But as he suggests, business has a tendency to get round such things.
I generally expect to see BAE shares on a P/E valuation a little lower than the long-term Footsie average of around 14, to compensate for volatility. But right now we’re looking at a multiple falling as far as just a little over 10 based on 2020 forecasts, and I see that as another sign of bargain shares.