Investors seeking long-term quality FTSE 100 dividend shares have been hit by crushing body blows in the last two months. Blue-chip FTSE 100 favourites have slashed or halted dividend payments in 2020. These include Royal Dutch Shell, BT, and WPP. But there is still hope for income-seekers.
I’m looking ahead to 2021 and 2022. I’ve planned many, many holidays. And I’m stacking up the investment cases for the highest dividend-paying FTSE 100 shares.
Top FTSE 100 dividend payers
The top four highest-yield FTSE 100 dividend shares that still plan to pay out in full in 2020 are these. First, Imperial Brands, with a 12.6% yield. Then BP (LSE:BP), with a 10.8% yield. Third is SSE (LSE:SSE), which offers 7.8%, and fourth is British American Tobacco (6.9% yield).
I’ve considered Imperial Brands a few times over the years. But I don’t like seeing a share price in a long-term downtrend. It has lost 60% of its value since 2016. It is also selling off assets — hitting future profitability — to pay what I believe is an unsustainably high dividend. I’d avoid.
I’m a bigger fan of its nearest rival, British American Tobacco, which has a market-leading grip on e-cigarettes and is innovating more quickly as well. At a price-to-earnings (P/E) ratio of just 9, I think there’s plenty of long-term value to be had here.
Energetic future
BP is an interesting one. Unlike supermajor rival Shell it is — so far — honoring its full 2020 dividend payment. At under 300p it boasts a yield of 10.8%, and a reasonable P/E of 18.
I think BP may still have to cut its dividend despite issuing billions in debt and slashing spending. But I’d still buy it at this level, as I’m certain dividends will return and the price will recover strongly in three to five years. Also, it has a better shot than Shell at thriving in the fast-approaching carbon-neutral economy.
Covid-19 has likely ended rampant business air travel but the future looks bright even if we have passed peak oil demand.
BP already owns the fastest UK electric vehicle charging network. And it has exciting prospects in China, considering the much larger market there. In 2019 it entered a joint venture with Chinese rideshare giant Didi Chuxing to snap up the same EV infrastructure. I’d wager this will be a very large and consistent source of revenue in the coming years.
Come see SSE
I’ve made no secret in the past of my support for SSE as the best FTSE 100 renewables play. A P/E of 18 isn’t particularly cheap. But it is perhaps testament to how the market feels about its future-facing revenue growth. And that tasty dividend looks secure because of its major infrastructure projects in the pipeline.
The UK government has committed to cutting carbon emissions to net zero by 2050. It will need SSE’s help to get there. Last week SSE announced it had chosen to host the operations base for the 3.6GW, £9bn Dogger Bank – the world’s largest offshore wind project – in the Port of Tyne close to Newcastle.
That means hundreds of new jobs in Tyneside, for one. And UK renewable energy is, as Business Secretary Alok Sharma noted: “One of the UK’s great success stories.” I’d buy SSE over and over again.