I’m looking for dividend shares to buy in 2022. A high yield is very attractive. But I also see decent cover by earnings as an indicator of better reliability. So I want five FTSE 100 dividend shares that offer an attractive combination of yield and cover.
With, say, £10,000 to invest in a 2022-23 ISA, which dividend shares would I buy?
I currently own Persimmon, which is on a forecast dividend yield of 11% this year. But that’s a bit misleading, as it includes surplus capital repayments. And it’s only barely covered.
I think Taylor Wimpey or Barratt Developments might offer a better option just now. Forecasts suggest dividend yields of 7.5% for each of them. But in addition, both dividends are expected to be covered around twice by earnings.
Rising interest rates and mortgage costs are putting pressure on housebuilder shares this year. Because of that, I can’t help feeling a bit more confident with this level of cover.
Oil isn’t dead
Looking for even better cover, I can’t avoid BP. It’s not up with the biggest-yielding FTSE 100 dividend shares. But with a forecast yield of 4.2% I reckon it’s still an attractive payer. What’s more, the cash should be covered three times by earnings, which is among the best in the Footsie.
There are obvious risks, with the oil price still up around $100 but likely to fall at some point. And the Ukraine war has raised the urgency around exiting the hydrocarbon business. But BP’s strong cash generation still tempts me. Oh, and Shell‘s 3.4% yield looks set to be covered five times!
Despite a 30% rise in the GlaxoSmithKline share price over the past 12 months, we’re still looking at a forecast dividend yield of 3.2%. That’s not massive, but I’m drawn to its 1.7 times cover by forecast earnings. Glaxo compares favourably to AstraZeneca, which is on a lower dividend yield with weaker cover.
I’m a little wary of buying on today’s share price valuation. But I’m attracted by GSK’s progressive dividend possibilities. Is it among the most attractive FTSE 100 dividend shares? It’s one I might buy on any future dips.
Financial sector cash
If I didn’t already own Lloyds Banking Group shares, I would almost certainly buy some. The Lloyds share price remains depressed, and that’s presumably related to housing fears. Lloyds is the UK’s biggest mortgage lender, and is getting heavily into the build-to-let business.
Normally, rising interest rates are good for banks, but is this part of the business holding it back? I expect uncertainty could keep the pressure on Lloyds shares. But a mooted 5% yield puts Lloyds among my favourite FTSE 100 dividend shares, especially with cover close to 2.5 times.
My fifth candidate is Legal & General, on a predicted 6.8%. Yes, we’re heading into high inflation and tough economic conditions, and that could hurt the financial sector. But dividend forecasts are strong, at least for now. And cover of 1.8 times gives me some confidence.
FTSE 100 dividend shares portfolio
Which of these am I likely to buy? I reckon £10,000 spread across one of the builders, an oil company, Glaxo, Lloyds and Legal & General could give me a nicely diversified ISA selection.