Investors looking for the best FTSE 100 dividend shares have faced some turmoil, with Evraz being toppled from its perch. The Russia-based steel maker was forecast to provide the index’s biggest dividend yield in 2022.
Now it’s paying no dividend, isn’t in the FTSE 100 any more, and its shares have been suspended. We couldn’t have predicted the war in Ukraine, but it reminds me of one thing. When I try to find the best dividend shares, I need to look beyond simply a high dividend yield.
So which FTSE 100 dividend shares would I buy today with £5,000?
High-yield dividend shares
Well, there are actually some juicy yields out there right now, with mining stocks offering some of the biggest. Rio Tinto and BHP Group are currently on forecast dividends of more than 10%. The business is cyclical, and both of those have lifted and lowered their dividends regularly. But for the long term, I’m tempted to invest in one of them.
Among the biggest yields from dividend shares, I also find British American Tobacco and Imperial Brands. They both offer yields of around 8%, both covered about 1.5 times by earnings. Despite the growing shift in the tobacco business adds risk, these two look like dependable payers.
Best long-term growth
I want to get back to the thought that the biggest yields aren’t necessarily the best. According to AJ Bell, over the past 10 years the highest yielding dividend shares have not produced the biggest total gains. No, that crown belongs to companies with the best long-term dividend growth records.
Dechra Pharmaceuticals, for example, generated a total return of more than 1,000% between 2011 and 2021. Share price rises played a part in that. But if a company can lift its dividend every year for a decade, share price gains are very likely to follow.
Even ignoring recent high growth sectors like pharmaceuticals, the humble Diageo has returned more than 250% over a decade of progressive dividends.
But here’s the most exciting fact I see regarding dividend shares. The average return from those FTSE 100 companies that have raised their dividends for 10 consecutive years exceeds 800%. By comparison, the FTSE 100 returned just 90%. Progressive dividends are definitely what I want.
50 years of dividend raises
I would never consider a portfolio of dividend shares complete without at least one investment trust. Specifically, one of the select few to have lifted their dividends every year for at least 50 years.
I do have to head outside the FTSE 100 for these, though. I currently own City of London Investment Trust, which has provided dividend growth for the past 55 years. There’s a small handful that have achieved a similar feat, and one of those will be my next investment trust purchase. There’s no guarantee that the dividend rises will continue, and there’s a risk the shares could drop if it falters during one year.
So where would my £5,000 go? There are a lot of great options here, and I’d select a diversified four or five.