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The FTSE 100‘s been an amazing place to seek for dividend shares in current a long time. However instances have been harder extra lately as earnings and stability sheets have grow to be strained.
Dealer AJ Bell notes that “there have been 138 dividend cuts throughout the present crop of FTSE 100 members previously decade”. Greater than half (74) got here out of the blue when the Covid-19 disaster broke. One other 9 have been chalked up in 2023.
The guidelines
General, UK blue-chips are usually a very good guess for buyers looking for dividend revenue. The Footsie’s common dividend yield sits at an inflation-busting 3.8% for this yr, AJ Bell says. And the determine rises to 4.1% for 2025.
However a patchy file for the reason that pandemic means buyers should be extra cautious that regular when investing for dividends.
I search for firms which have:
- Market-leading positions and various income streams
- Defensive operations that present earnings stability
- A sustainable dividend payout ratio of 30-50%
- Robust dividend cowl of two instances or above
- Strong stability sheets (with strong money flows and low debt)
- Lengthy monitor data of dividend progress
Not all high dividend shares meet all of those standards. However by attempting to tick off as many as attainable, I can considerably enhance my probabilities of producing a wholesome passive revenue.
Prime inventory number one
To this finish, HSBC Holdings (LSE:HSBA) is on my record of dividend shares to purchase in Could. That’s regardless that its current dividend file is lower than good. The banking big minimize the dividend in 2019 and once more in 2024.
It’s additionally regardless of income creation being extremely depending on sturdy financial circumstances. Notably regarding for this inventory is sustained turbulence in the important thing Chinese language economic system.
HSBC has lots of engaging qualities as a dividend inventory. Its dividend yield for 2024 sits at 7.6%, which is double the FTSE 100 common.
This yr’s predicted dividend can also be lined 2.3 instances over by anticipated earnings. The corporate additionally has a robust stability sheet, a CET1 capital ratio of 14.8% as of December has been boosted extra lately by asset gross sales in Canada.
Lastly, HSBC’s dividend payout ratio stands at a sustainable 43%.
Prime inventory quantity 2
I’m additionally contemplating shopping for WPP (LSE:WPP) shares this month. The promoting big carries a wonderful 4.8% dividend yield for this yr.
Shareholder payouts listed here are extremely correlated to the energy of the worldwide economic system. So WPP’s annual dividend is predicted to be frozen at 39.4p per share for the second straight yr in 2024 as robust circumstances persist.
However as an revenue investor there’s nonetheless rather a lot to love right here. The advert company nonetheless carries that market-beating yield, after all.
In the meantime, dividend cowl sits at 2.3 instances. Web debt to EBITDA stands at a manageable 1.8 instances. And the payout ratio is available in at round 40%. All of those give present dividend forecasts added energy.
I’m assured WPP can be ready to develop dividends once more earlier than lengthy too. I consider its rising funding in digital promoting and ongoing world growth ought to drive income (and thus dividends) steadily greater.
