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I store for FTSE 100 shares that provide excessive dividend yields.
As a place to begin, I discovered a listing of the most important payers with yields starting from 7.4% to 9.9%.
However I am cautious of falling sufferer to the bait and swap. What if I purchase a inventory at this time due to its sky-high yield, solely to have the dividend minimize months later?
Listed below are two easy checks I take advantage of to keep away from such frustration.
Payout ratios
First, I like to take a look at the payout ratio. This tells traders whether or not the corporate’s dividends are being lined by earnings. When an organization pays dividends that aren’t supported by its earnings, it should cut back its money reserves and even go into debt to help them.
This straightforward indicator tells me immediately that the FTSE 100 is the best dividend yielding world funding supervisor M&G, paid 20p per share in 2022, incomes -67p. This loss was blamed on “destructive modifications out there because of the volatility noticed within the markets throughout a troublesome yr“.
| Firm | Sector | Dividend yield | Fee ratio for 2022 |
|---|---|---|---|
| M&G | Funding banking and brokerage providers | 9.9% | destructive |
| Phoenix Group Holdings | Life insurance coverage | 9% | 63% |
| Authorized and common group | Life insurance coverage | 8.6% | 50% |
| Vodafone | Suppliers of telecommunications providers | 8.3% | 120% |
| British American Tobacco | Tobacco | 8.2% | 98% |
| Rio Tinto | Industrial metals and mining | 8% | 65% |
| Aviva | Life insurance coverage | 7.6% | 47% |
| Taylor Wimpey | Family items and residential building | 7.5% | 52% |
| Imperial manufacturers | Tobacco | 7.4% | 85% |
in the meantime, Vodafone paid out 120% of its earnings per share in dividends because the telco’s earnings fell attributable to Brussels’ rulings to finish roaming prices within the EU and EEA.
British American Tobacco‘s dividends have been virtually lined by earnings, with a payout ratio of 98%. For my part, that is too small a margin for consolation.
After making use of the primary check, I’ve six candidates left: Phoenix Group Holdings, Authorized and common, Rio Tinto, Aviva, Taylor Wimpey, and Imperial manufacturers.
Consistency is vital!
Subsequent, I search for how steady the dividend is. For this check, I am going to exclude all corporations that minimize their dividend sooner or later between 2016 and 2022.
This isn’t notably strict, provided that there are lots of so-called dividend aristocrats – that’s, corporations which have grown their dividends for 25 years in a row.
| Firm | 2016 yr | 2017 yr | 2018 yr | 2019 yr | 2020 yr | 2021 yr | 2022 yr |
|---|---|---|---|---|---|---|---|
| Phoenix Group Holdings (£) | 0.42 | 0.45 | 0.46 | 0.47 | 0.47 | 0.49 | 0.51 |
| Authorized and Normal (£) | 0.14 | 0.15 | 0.16 | 0.18 | 0.18 | 0.18 | 0.19 |
| Rio Tinto (£) | 1.34 | 2.13 | 2.33 | 3.01 | 3.42 | 5.78 | 4.07 |
| Aviva (£) | 0.31 | 0.36 | 0.39 | 0.2 | 0.28 | 0.29 | 0.31 |
| Taylor Wimpey (£) | 0.03 | 0.05 | 0.06 | 0.04 | 0.04 | 0.09 | 0.09 |
| Imperial Marks (£) | 1.55 | 1.71 | 1.88 | 2.07 | 1.38 | 1.39 | 1.41 |
Phoenix Group Holdings and Authorized & Normal are the one ones that go this check.
What’s subsequent?
By decreasing the listing from 9 to 2, I gave myself a extra manageable workload.
Now I need to undergo the annual studies of Phoenix Group Holdings and Authorized & Normal for a number of years to get a greater understanding of their enterprise earlier than making any selections.
