In uncertain times, a focus on the shareholder dividends paid by companies can be a good thing. So, I’ve identified my top FTSE 100 dividend shares.
But in fairness, prioritising dividends can pay off in the best of times as well. Indeed, the great thing about dividends is the income tends to arrive regularly if we own the stock. And many companies pay interim and full-year dividends each year.
Income from FTSE 100 dividend shares
Sometimes we get quarterly dividends as well. For example, those paid by tobacco and smoking products company Imperial Brands and oil giant and energy company BP. And it’s not uncommon to receive special dividends on top of those ordinary dividends. Occasionally special payments arise because of strong trading. Or it could be because of a corporate action such as a sale of assets or other events.
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And the income from dividends can add up to a substantial portion of the overall returns we gain from holding shares. What’s more, the regular money can help to offset some of the volatility that share prices often deliver. Indeed, it can be frustrating watching the capital value of a portfolio fall when share prices are weak. But if dividends keep ringing the cash register they can help with the emotional aspects of investing in stocks.
And a decent yield can be a good indicator of value. It can help us to buy stocks when they are assigning a fair valuation to an underlying business. Infamous fund manager Neil Woodford used a simple dividend strategy to produce great returns when he was a successful investor.
He used to lead his evaluation of a stock opportunity by examining its dividend yield. And also its potential dividend growth rate. And the method worked well. Woodford generated capital growth from rising share prices as well as income growth from rising dividends.
Dividends as a measure of business health
Lord (John) Lee — the UK’s first-outed ISA millionaire — is another who thinks dividends are important. He made millions investing in growing businesses and holding their shares for a long time as they expanded. And he once said the presence of a dividend is one of the first things he looks for when evaluating a stock opportunity. He reckons the dividend decisions made by company directors can reveal much about the underlying health of an enterprise and its forward-looking prospects.
I reckon FTSE 100 companies with defensive businesses can make some of the best enduring dividend payers. But even defensive dividend-paying companies could end up making poor investments. All shares come with risks as well as positive potential. Nevertheless, I’d embrace such risks — after careful research — in order to expose my portfolio to the upside potential of shares.
And right now, I like the look of the fast-moving consumer goods giant Unilever. With the share price near 3,536p, the forward-looking dividend yield for 2023 is around 4%. I’m also keen on smoking products maker British American Tobacco. With the shares at 3,228p, the 2023 yield is forecast to be over 7%. And my energy play would be National Grid. With the stock at 1,211p, the yield is over 4% for the trading year to March 2023.
