I know many of you are really keen on blue-chip dividends right now.
I’m not that surprised, given the low interest paid by savings accounts and the decent income yields offered by some of the country’s best-known shares.
So as you take the next five minutes to read this article, I’ll show you what, in my opinion, is a quality ten-share dividend portfolio — a collection of names that you may wish to use as a starting point for your own research.
Based on recent share prices, this portfolio offers a potential yield of 5.2%.
Simple rules to pinpoint ‘yield appeal’
I used a few simple rules to narrow down the entire stock market to just ten choices.
In particular, to produce what I consider to be a lower-risk portfolio…
- I kept to FTSE 100 companies;
- I limited my choices to one share per sector;
- I sought companies with dependable dividend histories, and;
- I wanted shares that offered a reasonable trailing yield.
Here’s what I found:
| Company | Price (p) | Trailing dividend per share (p) | Trailing Yield (%) |
|---|---|---|---|
| Admiral (LSE: ADM) |
1,359 | 94.4 | 6.9 |
| BAE Systems (LSE: BA) |
399 | 19.7 | 4.9 |
| BP (LSE: BP) |
475 | 23.4 | 4.9 |
| GlaxoSmithKline (LSE: GSK) |
1,552 | 78 | 5.0 |
| HSBC (LSE: HSBA) |
618 | 29.5* | 4.8 |
| Imperial Tobacco (LSE: IMT) |
2,447 | 116.4 | 4.8 |
| Pearson (LSE: PSON) |
1,038 | 48 | 4.6 |
| J Sainsbury (LSE: SBRY) |
310 | 16.9 | 5.5 |
| SSE (LSE: SSE) |
1,469 | 85 | 5.8 |
| Vodafone (LSE: VOD) |
214 | 10.5 | 4.9 |
| Average | 5.2 |
(All share prices taken on 11 April. *Dividends declared in US dollars with 2013 payment translated at £1:$1.66)
I ended up with a motor insurer, a defence contractor, an oil major, a pharmaceutical group, a global bank, a cigarette manufacturer, a media conglomerate, a supermarket, an energy supplier and a mobile telecoms outfit.
So, plenty of diversity there!
Illustrious dividend histories
When selecting my ten names, I noted the payouts from Admiral, BAE, Glaxo, Imperial, Pearson, SSE, Sainsbury’s and Vodafone had all come through the banking crash intact, which suggested those companies could offer significant resilience during any further multi-dip recession.
In fact, BAE, Glaxo, SSE, Imperial, Pearson and Vodafone have each lifted their dividends for at least the last ten years.
As such, the portfolio does have a dependable and quality feel about it.
But I must admit, the collection is not perfect.
Certainly BP has a ‘history’. The oil giant axed its payout during the Gulf of Mexico oil disaster and its current payout remains one third less than the pre-spill level.
And there is also HSBC, which also chopped its payout during the banking crash – and the current dividend remains 40% lower than the amount declared for 2007.
Nonetheless, I included both BP and HSBC because their dividends have recovered well since their respective difficulties. Plus their current yields seem attractive, while the oil and banking sectors remain substantial and provide a little more diversification for this exercise.
The case for regular special dividends
Top of the table in terms of yield is Admiral, which sports a hefty 6.9%.
Now many investors would baulk at such an income, believing it to be too good to be true.
And quite often, such mega-yields do signal possible danger as the market sniffs a dividend ‘rebasing’ on the horizon…
But in Admiral’s case, the firm’s generous dividend policy — it pays out surplus cash through special dividends every year — supports the hefty income I’ve quoted above.
What’s more, a faultless history (the payout has been lifted every year since the 2004 flotation) indicates a somewhat dependable and quality operator.
Of course, Admiral’s special dividends may not always be a regular annual fixture. But that is the risk you take with 6.9% currently on offer!
A 5.2% average yield
All told, the average yield from my ten selections comes to 5.2% — a good bit higher than the 3.6% yield on offer from the FTSE 100 at 6,562.
Bear in mind, too, that I’ve calculated the ten yields based on dividends declared during the last twelve months – so there are no forecasts involved here.
And it’s not as if that potential 5.2% income comes with an obvious wealth warning either – all ten shares hoisted their latest payouts.
Excellent chance of beating cash and the market
Of course, there are never any guarantees with the stock market, as even the very best companies can disappoint shareholders from time to time.
But from my initial market search, I’m confident the ten shares combined stand an excellent chance of delivering a regular income that beats a deposit account and the wider stock market by a significant margin.
Please remember, though, that you should use the ten shares as a starting point for your own further research. Only you can decide whether any of the companies are actually right for you!
