2022 is shaping up to be a bumper year for shareholders. Some 97 FTSE 100 companies are expected to pay out over £81bn in dividends, equating to a yield of 3.9%. I feel I’m simply spoilt for choice. But as my budget will not stretch to buy them all, these two dividend stocks are my crème de la crème buys today.
Dividend pick 1: Glencore
Mining stocks feature heavily among the top-10 dividend contributors in the FTSE 100. But for me, Glencore (LSE: GLEN) has the slight edge over Rio Tinto and Anglo American.
One thing that attracts me to Glencore shares is its thriving marketing business. This division trades in commodities, moving them from where they’re plentiful to where they’re needed.
In its latest trading update a few weeks ago, Glencore highlighted that “unprecedented dislocation in energy markets [has resulted] in record pricing differentials” in coal markets.
As the spectre of inflation returns to haunt investors, Glencore shares, like many other commodities, have seen a sell-off recently. Over the last month, the stock is down 20%. However, to me this has made the shares even more attractive. The total payout in 2022 is expected to be over £5bn. An estimated dividend yield of 8% is now even higher following the share price fall.
The clear risk to Glencore shares is its over-reliance on coal. Accounting for 20% of revenues in 2021, the company has been doubling down, recently acquiring more mines. In the years ahead, it will likely need to find alternative sources of revenue as coal usage declines.
My investment case for Glencore remains unchanged despite the share price wobble. I hope short-term headwinds will be but a distant memory in the years ahead as many of the metals it produces will be in high demand and short supply as the world transitions to a low-carbon economy.
Dividend pick 2: Shell
Sporting a dividend yield of only 3.9%, it may seem strange that my second pick is Shell (LSE: SHEL). However, appearances can be deceptive.
Shell’s estimated total payout of £5.6bn is the second-largest in the FTSE 100. Despite such a huge sum, dividend cover is over 5 times. This suggests that management is adopting an ultra-cautious approach. Crucially, the dividend has been increasing quarter-on-quarter and has risen 50% in a year.
But the real attraction of Shell’s stock is its huge share buyback programme. In the first half of 2022, the company bought back a record $8.5bn of its own shares. Some $5.5bn of this was from the sale of its shale business in the US Permian Basin.
Throughout the rest of 2022, shareholder distributions are expected to be in excess of 30% of cash flow from operating activities. Given that this figure was $14.8bn in Q1 alone, then the size of the distributions is eye watering.
A clear risk to Shell’s shares is the peak oil conundrum. A likely recession will hit oil usage across the globe and cause the price of brent crude to fall.
However, the sell-off has presented a good opportunity for me as an investor with a long-term view. Oil and gas are unlikely to disappear from use any time soon. The company is also investing heavily in the energy transition and could be a major player in this arena in the future.