Dividends are an important part of investing. On The Income Investor we’ve recently looked at passive income dividend stocks and five ways to find great dividend shares.
With great timing, the stockbroker AJ Bell has recently released the latest AJ Bell Dividend Dashboard report. It shows:
- Total FTSE 100 dividend payments are forecast to grow by 36% this year to £84.1 billion, a fraction shy of the pre-pandemic peak of £85.2 billion
- Just ten firms are forecast to generate the majority of this dividend grow, with miners and banks dominating the list
- Rio Tinto is expected to be the index’s single biggest dividend payer this year with a payout of £10.8 billion
- Evraz and Rio Tinto are forecast to have the highest dividend yields this year of 17.9% and 17.8% respectively
Russ Mould, investment director at AJ Bell, comments:
“The FTSE 100 is currently expected to yield 4.1% in 2021, helped by the first year of dividend growth since 2018. The index’s total dividend pay-out is expected to reach £84.1 billion in 2021, compared to £61.8 billion in 2020, an increase of 36%.
“Total payments peaked at £85.2 billion in 2018 and 2022 is expected to get tantalisingly close to that mark, at £85.1 billion, as corporate profits, cash flows and confidence look to recover from the effects of the pandemic.
“Dividend forecasts for 2021 have advanced for the fourth quarter in a row, buoyed by more optimistic forecasts for miners in particular. This reflects higher industrial metals prices, although September’s sharp drops in copper and iron ore could potentially put the lid on this positive forecast momentum, should they persist.
“For the moment, however, dividend payments are seen reaching £85.1 billion in each of 2022 and 2023. What’s more, dividend cover is improving. The aggregate earnings cover ratio for the FTSE 100 is now forecast at 1.77 in 2021, an improvement on 2020’s 1.45 times earnings cover.”
Ten biggest forecast dividend increases in 2021
| 2021 E | 2021 E | |
| Dividend increase (£ million) | Dividend increase (% FTSE total) | |
| Rio Tinto | 6,467 | 28.9% |
| BHP Group | 2,621 | 11.7% |
| Anglo American | 2,492 | 11.2% |
| HSBC | 1,182 | 5.3% |
| Evraz | 1,021 | 4.6% |
| Glencore | 854 | 3.8% |
| Barclays | 840 | 3.8% |
| Lloyds | 838 | 3.7% |
| Royal Dutch Shell | 768 | 3.4% |
| BT | 763 | 3.4% |
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
| 2021 E | ||||
| Dividend (£ million) | Dividend yield (%) | Dividend cover (x) | Cut in last decade? | |
| Rio Tinto | 10,813 | 17.8% | 1.28x | 2016 |
| British American Tobacco | 4,966 | 8.1% | 1.43x | No |
| Royal Dutch Shell | 4,739 | 4.2% | 2.86x | 2020 |
| BHP Group | 4,594 | 11.3% | 1.03x | 2016, 2020 |
| GlaxoSmithKline | 4,004 | 5.7% | 0.95x | No |
| Unilever | 3,725 | 3.6% | 1.31x | No |
| Anglo American | 3,490 | 9.5% | 1.94x | 2015, 2016, 2020 |
| HSBC | 3,364 | 4.4% | 2.22x | 2019, 2020 |
| BP | 3,142 | 5.1% | 2.82x | 2011, 2020 |
| AstraZeneca | 3,116 | 2.5% | 1.34x | No |
| Vodafone | 2,152 | 6.3% | 0.89x | 2018 |
| Glencore | 2,004 | 4.5% | 2.29x | 2015, 2016, 2020 |
| National Grid | 1,808 | 5.2% | 1.30x | No |
| Diageo | 1,694 | 2.1% | 1.62x | No |
| Evraz | 1,560 | 17.9% | 1.33x | 2012, 2013, 2014, 2020 |
| Imperial Brands | 1,322 | 9.0% | 1.67x | 2020 |
| Reckitt Benckiser | 1,250 | 2.8% | 1.73x | No |
| Lloyds | 1,242 | 3.9% | 4.00x | 2019, 2020 |
| Legal and General | 1,074 | 6.3% | 1.81x | No |
| NatWest Group | 1,034 | 4.2% | 2.33x | 2019 |
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, Refinitiv data
Dividend aristocrats
We’ve previously highlighted the importance of dividend growth and the AJ Bell dashboard take a look at UK shares with the best long-term dividend growth records.
Mould commented: “The strongest long-term performance often comes from those firms that have the best long-term dividend growth record, rather than being the highest-yielding stock. Regular dividend growers can provide the dream combination of higher dividends and a higher share price as the increased distribution will over time drag the share price higher through sheer force. A 1p per share dividend on a 100p share price may not catch the eye, but if that dividend reaches 10p in a decade’s time it almost certainly will.
“The ravages of the pandemic and the recession have taken their toll on the ranks of FTSE 100 firms that can point to a ten-year dividend growth track record. One year ago, 24 firms were on this list. That number has since dwindled to 15 even as National Grid and United Utilities joined this elite grouping in 2021.
“Hikma Pharmaceuticals is working on a nine-year dividend growth streak and will therefore be looking to rack up a tenth and join this list in calendar 2022.
“Even allowing for the potential changes and deletions to the list of dividend-growers over time, those that managed to maintain their proud runs in 2020 have been tremendous long-term investments.
“The average capital gain from the 15 ten-year dividend growers is 681% and the average total return is 863%. Both easily beat the FTSE 100, at 31% and 92% respectively.”
| Total return | Dividend CAGR* | Forecast dividend growth** | ||
| 2011-2021 | 2011-20 | 2021 E | 2022 E | |
| Ashtead | 4,937.9% | 29.3% | 13.9% | 12.5% |
| Intermediate Capital | 1,403.0% | 12.0% | 12.5% | 14.3% |
| London Stock Exchange | 1,084.4% | 11.9% | 18.7% | 15.7% |
| Scottish Mortgage | 1,039.9% | 3.6% | 3.8% | 4.2% |
| Spirax-Sarco Engineering | 952.4% | 10.6% | 13.6% | 6.0% |
| Halma | 921.8% | 6.8% | 7.6% | 10.5% |
| Croda | 508.4% | 10.0% | 16.5% | 5.7% |
| RELX | 480.6% | 8.7% | 4.3% | 8.2% |
| DCC | 398.1% | 10.2% | 7.0% | 5.8% |
| Hargreaves Lansdown | 296.9% | 17.3% | (12.9%) | 9.1% |
| Sage | 267.0% | 8.3% | 1.7% | 2.6% |
| Diageo | 263.4% | 6.3% | 3.8% | 3.4% |
| United Utilities | 179.2% | 3.7% | 1.2% | 2.3% |
| National Grid | 161.6% | 3.1% | 1.7% | 2.0% |
| British American Tobacco | 54.6% | 6.6% | 0.6% | 5.5% |
| AVERAGE | 863.3% | 9.9% | ||
| FTSE 100 | 91.8% | 5.0% | 36.2% | 1.1% |
Source: Refinitiv data, Company accounts. *Compound annual growth rate. **Source: Marketscreener, consensus analysts’ forecasts
“Dividend growth is so powerful because it almost inevitably drags a share price higher.
“The average dividend yield for the 15 ten-year raisers is forecast to be 2.4% in 2021, below the 4.1% average across the FTSE 100. But their below-average yields have hardly proved a barrier to excellent total returns over the subsequent ten years.
“That is at least partly because, the dividend yield available on the September 2011 share price using forecast 2021 dividends is 9.9% – and if anyone offered an investor a guaranteed 9.9% dividend yield they would probably snap your hand off, so that shows how a rising dividend can lift a share price, boosting income and capital gains for a powerful total return.”
| 2021 yield on Sept 2011 share price | 2011 yield on Sept 2011 share price | |
| Ashtead | 29.7% | 2.5% |
| British American Tobacco | 7.7% | 4.5% |
| Croda | 4.7% | 2.8% |
| DCC | 10.1% | 4.0% |
| Diageo | 5.7% | 3.3% |
| Halma | 5.1% | 2.8% |
| Hargreaves Lansdown | 10.9% | 2.8% |
| Intermediate Capital | 24.6% | 8.3% |
| London Stock Exchange | 9.3% | 3.3% |
| National Grid | 7.9% | 6.3% |
| RELX | 9.5% | 4.4% |
| Sage | 6.6% | 2.8% |
| Scottish Mortgage | 2.5% | 1.7% |
| Spirax-Sarco Engineering | 6.4% | 2.3% |
| United Utilities | 7.2% | 5.0% |
| AVERAGE | 9.9% | 3.8% |
Source: Refinitiv data, company accounts, Marketscreener, consensus analysts’ forecasts
As expected, this year dividends are recovering after many were cut in 2020. The dominance of miners though shouldn’t blinker the fact that it is a cyclical industry and any slow down in the Chinese economy is likely to hit miners hard.
The Income Investor 
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