The latest stock market weakness has highlighted the big yields offered by a lot of dividend shares right now. With inflation exceeding 10% and interest rates rising, dividends should surely be under pressure, shouldn’t they? They don’t seem to be.
The latest Dividend Dashboard from AJ Bell suggests 2022 could even be the best year for FTSE 100 cash returns ever. Forecasts put the ordinary dividend total at £81.5bn, and suggest £1.6bn in special dividends.
In addition, FTSE 100 companies have already announced a record £50.3bn in share buybacks.
But we need to be cautious. Analysts’ often take a long time to adjust their forecasts to changing conditions. And a number could well be pared back before that reality is known.
10 dividend shares
Still, I reckon there’s decent safety margin in current forecasts. And I think I see some great FTSE 100 buys. Here are the 10 FTSE 100 shares I’d pick to start a dividend portfolio today.
| Company | Recent share price |
12-month change |
Forecast dividend |
Forecast P/E ratio |
| Lloyds Banking Group | 42p | -16% | 5.0% | 6.3 |
| Persimmon | 1,250p | -56% | 18% | 5.2 |
| National Grid | 900p | -1.4% | 5.7% | 8.9 |
| Rio Tinto | 4,745p | -5.0% | 10.5% | 6.2 |
| Aviva | 405p | -25% | 7.5% | 17 |
| Imperial Brands | 2,005p | +24% | 7.0% | 9.0 |
| M&G | 176p | -12% | 10.8% | n/a |
| Vodafone | 100p | -11% | 7.6% | 14 |
| WPP | 761p | -32% | 4.6% | 9.6 |
| GlaxoSmithKline | 1,370p | -15% | 6.4% | 12 |
Forecasts vary between sources, and I’ve tried to be conservative. P/E forecasts for M&G are all over the place, with no real earnings expected this year. But analysts seem unanimous in forecasting earnings growth for the next two years, and predict a 2023 P/E of around nine.
Safety vs risk
For safety, I’ve gone for diversification and have avoided going for, say, another housebuilder. I’d never diversify just for the sake of it and buy stocks I wouldn’t choose on their own merits. But, fortunately, there are far more than 10 FTSE 100 dividend shares that I like the look of.
I haven’t covered individual risks, and I think it would be foolhardy to buy any of these individually without doing proper research.
The biggest overall risk that I see is that the dividend forecasts might be wrong and these stocks may not pay what they suggest. If that happens, share prices could fall. And I really do expect some to fall short of predictions. But, for me, that’s a short-term risk. And I’d be buying with a long-term horizon.
Verdict
My big takeaway from this is that dividend yields and price-to-earnings (P/E) ratios mostly look very attractive by long-term standards. A few of these companies are engaged in share buybacks too, so they don’t seem to be short of cash.
And that’s a contrast with today’s seriously negative investing sentiment. But markets always overreact, don’t they?
My bottom line? I already own shares in several of these companies. But if I had the cash to buy all the rest today to make a 10-share long-term dividend portfolio, would I do so? I think I would, yes.
