Today, I’m looking at the latest dividend forecasts for three of the most popular FTSE 100 income stocks. What can shareholders expect next year? Will payouts rise — or fall?
I’m going to start with telecoms heavyweight Vodafone (LSE: VOD), before moving on to utility stalwart National Grid (LSE: NG) and mining giant Rio Tinto (LSE: RIO).
Vodafone: a slow grower
Vodafone spends around €2.5bn each year on its dividend, which is currently set at €0.09 per share. This payout was covered by the group’s surplus cash flow of €3.1bn last year — a performance that’s expected to improve during the current year.
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The problem for Vodafone is that growth is low, despite continued spending on network upgrades. CEO Nick Read hopes to break this cycle by streamlining the group’s operations and offering more advanced digital services.
City analysts seem to be cautiously optimistic. The latest consensus forecasts show adjusted earnings rising by 18% in 2022, even though sales are only expected to rise by 2.8%. This suggests profit margins could improve.
However, Vodafone’s high debt levels mean that dividend growth will take longer. Broker forecasts suggest the payout will rise by just 1% to 9.1 eurocents per share next year, leaving the yield unchanged at 6.8%. I’d buy the shares for income, but not for growth.
National Grid: 5% yield looks safe to me
National Grid doesn’t generate electricity in the UK, but this FTSE 100 stalwart still expects to profit from growing demand for renewable energy. NG recently acquired regional electricity network operator Western Power Distribution. In 2022, the group plans to sell some of its UK gas network assets.
These changes are important for shareholders because electricity demand is rising faster than gas. Increased exposure to electricity should improve earnings growth. In turn, this should strengthen support for National Grid’s dividend.
Of course, these changes aren’t without risk. When companies make a rapid series of big changes things don’t always go to plan. Costs can rise and the results aren’t always as good as expected.
Fortunately, NG doesn’t depend solely on its UK operations. The group generates about half its profits from its US utility businesses. This provides useful diversification, in my view.
City analysts expect National Grid’s dividend rise by 2% in 2022, to 50.3p. That gives the stock a forecast dividend yield of 5.3%. I’d buy the shares for my portfolio at this level.
Rio Tinto: dividend likely to fall
FTSE 100 miner Rio Tinto generates more than 80% of its profits from iron ore. And the group has benefited from a huge boom in demand since the pandemic struck last year.
Rio Tinto’s profits rose by 22% to $9.8bn in 2020. During the first half of 2021, underlying earnings rose by 156% to $12.2bn — more than in all of 2020.
As a result, broker forecasts suggest shareholders will receive a record dividend of $10.57 per share for 2021.
However, the iron ore price has fallen by 40% since the end of July, as demand has weakened. City analysts expect to see Rio’s profits fall by around 35% in 2022 as prices return to more normal levels.
Dividend forecasts reflect this. Rio’s 2022 payout is expected to fall by around 35% to $6.50 per share.
Although this still gives Rio a very attractive 2022 forecast yield of 10%, I think it’s worth remembering that mining is a boom-and-bust business. Profits are expected to fall again in 2023. I’m staying on the sidelines for now.
