Top FTSE 100 shares may have slashed dividends after the stock market crash but don’t despair, plenty are still paying out.
You can still generate the dividends you need to get rich and retire early, by building a portfolio of top FTSE 100 shares. As returns on cash, bonds and annuities collapse, shares still look the best way to generate a rising passive income for your retirement.
Investment platform Interactive Investor has just issued a list of the UK’s five top dividend stocks, and you won’t be surprised at the names. Especially when you see the list is headed by pharmaceutical giant GlaxoSmithKline. It has been a top income stock for years.
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Glaxo has frozen its dividend at 80p for years, as it diverts money into replenishing its drugs pipeline. That now looks a farsighted policy. This top FTSE 100 income share still yields 4.8%, thrashing cash.
Big pharma rival AstraZeneca also features in the top five. It generates a relatively low 2.6%, partly down to strong share price growth. Astra is expensive at more than 25 times earnings (against 14x for Glaxo), but this is a quality long-term buy-and-hold.
Tobacco giant Imperial Brands Group is the only one of these five FTSE 100 shares to cut its recent dividend, by a third. That was a painful move, the first in 24 years. As Interactive Investor points out, this will help Imperial Brands manage its £14bn debt and absorb the coronavirus hit. It is still forecast to yield 9.6%. Also, it trades at a bargain price 6.1 times forecast earnings.
Inevitably, oil giant BP features in the famous five FTSE 100 shares. It actually increased its first-quarter dividend payout, by 2.5%, handing £1.7bn to shareholders. This is doubly impressive as Royal Dutch Shell scrapped its long-standing dividend altogether.
I’d buy these 5 FTSE 100 shares for retirement
This may not last. BPs net debt now stands at $51bn. That’s due to acquisitions, capital investment and the oil price slump, but also years of share buybacks and dividend payments. New boss Bernard Looney’s move to announce £14bn of write-downs may pave the way for a second-quarter dividend cut. Given today’s high yield of 9.6%, investors may be willing to take the hit.
I’m pleased to see Phoenix Group Holdings feature in the FTSE 100 income share top five, as the insurance consolidator is a favourite of mine. It has a low-risk business model and recently justified my faith by hiking its dividend, by 1.74%. Right now, it yields a forecast 7.4% too.
That easily beats the 1% you are likely to get on cash or 2% to 3% on bonds, while avoiding the rigidity of annuities.
Dividends are never guaranteed, but over time should help you generate a rising passive income for a happier retirement.