Picture supply: Getty Pictures
When the FTSE 100 hit a document excessive in February, I hoped for the beginning of a prolonged bull run. So it’s laborious to not be left dissatisfied by one other weak efficiency by the UK’s prime shares his yr. The underperformance of our greatest index does have just a few silver linings nevertheless, and a kind of is bumper dividends. As share costs go down, dividend yields go up.
And only in the near past, just a few massive hitters have joined the 7% yield membership.
Large payouts
The 7% mark is roughly the common return of the FTSE 100 index stretching again to its inception in 1984, so to get that return from dividends alone is uncommon. Bear in mind, I’d additionally hope for an increase in share worth to make my returns even increased.
This uncommon likelihood won’t final for lengthy both. It’s uncommon to see 12 FTSE 100 companies providing a dividend yield over 7%. Nor do I anticipate the Footsie’s price-to-earnings ratio to remain under 11 for for much longer.
The three shares to catch my eye provide 7.02%, 7.51% and eight.19% dividend yields, and every solely handed the 7% barrier lately. Now, earlier than I have a look at these shares and their dividend forecasts, I’ll provide a phrase of warning.
Shopping for for large yields isn’t all the time simple. A return north of seven% on my funding sounds terrific, however dividend yield is a backwards-facing measure and is predicated on earnings and dividends from the final yr. So, the yield is a information for the long run, not a assure.
What’s extra helpful is the dividend forecast. This ahead going through measure tells me yields for upcoming years and provides me an concept of what sort of share return I’d anticipate. Nonetheless, this isn’t primarily based on earnings, it’s primarily based on the predictions of analysts. The uncertainty of those forecasts is a threat to remember too.
Including to my watchlist
To take one instance, the housebuilder Persimmon boasted a 15% dividend yield final yr. Alas, if I’d recklessly opened a big place then I may be sad after seeing the yield drop to five% this yr.
Now, with a few of the dangers of dividend yields in thoughts, let’s have a look at the numbers for these three firms. All forecasts are primarily based on the share worth as I write so may change in a short time.
| Dividend Yield | 2024 Forecast | 2025 Forecast | |
| HSBC | 7.02% | 13.50% | 10.90% |
| NatWest | 7.51% | 7.88% | 8.88% |
| St James’s Place | 8.19% | 7.97% | 7.32% |
First off, I’ll point out that I’m not contemplating NatWest. The banking group ruined a few spectacular years with the Nigel Farage debanking row. That led to detrimental publicity and lots of people, together with me, questioning its governance. The part-government-owned financial institution is one I’m avoiding.
The opposite two companies pique my curiosity although. World banking group HSBC is profiting from excessive rates of interest to ship massive earnings, though the excessive 2024 yield will probably be pushed by a particular dividend by means of a sale in its Canadian operations.
Wealth administration agency St James’s Place has seen its share worth falling 43% over the past six months and it’s close to a 10-year low. This drastic fall might current a chance to choose up a cut price on a budget. I’m including each to my watchlist.
