Many FTSE 100 dividends were slashed in 2020, but quite a few are coming back this year. After an overall drop in payments last year, the total to be paid out in 2021 is expected to rise by around 20%.
I’m very much an income investor, and I’m looking closely at these five as possible Stocks and Shares ISA candidates.
No look at dividend stocks is complete without Evraz. Forecasts put the miner and steel-producing giant on a yield of over 10%, with a P/E of around eight. That’s the highest forecast yield in the Footsie, and a P/E that’s only a little over half the index’s long-term average. On the face of it, that looks like a super-cheap dividend stock.
Why the apparent undervaluation? Well, Evraz does operate in Russia. And investors are wary of countries that aren’t strong on basic market freedoms. Oh, and Evraz has raised and lowered its dividend several times over the past decade.
Still, we can find some big FTSE 100 dividends from UK-based stocks too. That includes Imperial Brands, with about 8.5% predicted for the current year. Imperial has been offering high dividend yields for years, as its share price has declined — it’s down 60% over the past five years.
The downside is, well, that it’s a tobacco company. There are ethical concerns there, but financial ones too. Tobacco is increasingly a pariah product in most developing countries. Worldwide, consumption remains strong. But will that eventually turn downwards?
Two I already own
My next FTSE 100 dividend pick is homebuilder Persimmon, which I already own. House sales have been surprisingly robust through the pandemic. And we’re looking at a forecast dividend yield of 7.8% here. As I write, though, the Persimmon share price is down after Thursday’s trading update. Last year’s stamp duty holiday is coming to an end, and uncertainty is creeping into the market. Housebuilder share prices tend to be cyclical too.
I’m holding my Persimmon shares for the dividends. But I do think this sector best suits those with a long-term investing horizon.
And now another of my own holdings, Lloyds Banking Group. There aren’t any big 2021 dividends forecast yet. Due to Prudential Regulation Authority restrictions, Lloyds was able to pay only 0.57p per share in 2020, yielding 1.6%. There should be some loosening this year, but I don’t expect a huge payout.
No, my Lloyds dividend optimism is longer term, based on the bank’s Q1 statement that it has been “accruing dividends with intention to resume progressive and sustainable ordinary dividend policy.”
Are there risks with Lloyds? Well, yes. I think the biggest is our uncertain, and possibly fragile, economic outlook.
Best FTSE 100 dividend?
Finally, I come to what I think might be the best FTSE 100 dividend stock I’ve never owned. It’s National Grid. This is a company that owns a key resource that others really can’t compete with… its energy distribution networks. It’s strongly cash generative, and has good visibility of future earnings. And there’s a forecast dividend yield of 5.2%.
What’s the downside? Well, National Grid is in a regulated business, which does dampen its freedom. And I don’t expect much share price growth — it’s fallen 24% in five years.
For my long-term Stocks & Shares ISA, all five of these have to be candidates.