Yields of up to 15pc are on offer next year as FTSE 100 dividends return to record levels, rewarding investors who make early moves to capture 2022’s top payouts.
Total payments could reach £85.1bn, just behind the £85.2bn record paid out in 2018, according to the stockbroker AJ Bell, as profits and economies rebound after the pandemic.
Analysts are predicting British blue-chip stocks will build on a strong recovery in dividends this year. Payouts from FTSE 100 companies are forecast to reach £84.1bn in 2021, a rise of 37pc from £61.4bn in 2020.
Dividends from some of the London stock market’s biggest payers this year have sent their yields soaring.
Shares in miners Rio Tinto and Evraz yield almost 18pc, based on payouts for their 2021 financial year and current share prices, according to AJ Bell. Rival BHP Group yields 11.3pc.
While dividends from miners have ballooned, investors haven’t left it too late to cash in, according to experts. More than half of Rio Tinto’s 17.8pc yield is forecast to come from a bumper final dividend expected to be paid in April. Similarly, half of Evraz’s $1.48 dividend predicted for its 2021 financial year has yet to be paid.
The FTSE 100’s trio of top dividend payers are meanwhile forecast to continue to offer high payouts next year. Analysts have estimated 2022 yields of 14.9pc for Evraz, 12.4pc for Rio Tinto and 12.2pc for BHP.
Is this too good to be true? Ian Williams, the manager of the Charteris Premium Income fund, said he did not think so. Mr Williams, who holds around a third of his portfolio in mining stocks, said he expected double-digit yield forecasts to come good, despite a slump in the iron ore price from its summer high amid waning Chinese demand.
“Even if commodity prices fall, mining companies are so profitable they can still pay high dividends,” he said.
“Rio Tinto takes iron ore out of the ground for around $20 a ton. Prices have fallen by almost half since July to $118 a ton, so even after a crash it can still afford to pay shareholders.”
Mr Williams argued that miners could continue to raise their dividends in the future as they rode a wave of higher demand for metals as governments and companies pushed to decarbonise the economy.
“You can’t have decarbonisation without metals. Electric cars use four times as much copper as their petrol equivalents – demand for the metal could rise more in the next 10 years than it has done in the past 2,000,” he said.
“Rare earth” metals will also be in demand thanks to their use in the lithium-ion batteries used to power electric cars. Mr Williams highlighted Polymetal International, forecast to yield 9.8pc next year, as a major miner of these metals.
However, other investors warned that chasing the high yields offered by mining stocks was dangerous. Laura Foll of the fund group Janus Henderson said: “Be wary of relying solely on the yield to value shares.”
She added that Rio Tinto and BHP’s high forecast dividends depended on the prices of a narrow basket of metals.
Ms Foll highlighted shares in rival miner Anglo American, which she owns in her funds, as an alternative. Expected to yield 6.6pc next year, she argued that the stock’s dividend was more reliable as the company made money from a large basket of commodities, including copper, diamonds, iron ore and nickel.
Shares in banks also offered good dividend prospects, she said. Lenders have resumed payouts after the Bank of England scrapped restrictions imposed at the start of the pandemic, and their dividends are expected to grow. Lloyds Banking Group and NatWest, which Ms Foll owns, are forecast to yield 5.6pc and 4.7pc respectively next year.
Simon Gergel, manager of the £660m Merchants Trust, also cautioned on the outlook for miners’ dividends. He said payouts from Rio Tinto and BHP would fall next year should the iron ore price remain at its current level.
He recommended tobacco companies as an alternative source of dividends as their profits were more predictable. British American Tobacco and Imperial Brands are forecast to yield 8.5pc and 9.2pc next year, and the former has raised its payout in each of the past 23 years.