The FTSE 100 staged a solid rally in the first half of June, and it has still returned 9.1% in the year-to-date period. Weakness took over last week in the face of oil price volatility, poor industrial output growth in China, and the shadow cast by the Tory leadership race and the possibility of a general election.
Investors should brace for more volatility as we look ahead to the second half of 2019. Today I am going to look at three of the top dividend stocks on the FTSE 100 that boasts yields exceeding 5%. I will be targeting companies that have a wide economic moat in order to stake a defensive position.
British American Tobacco
British American Tobacco (LSE: BATS) is the largest publicly traded tobacco company in the world. British American Tobacco boasts a market-leading position in over 50 countries. Global regulations in the tobacco industry have made it extremely difficult for any competition to pose a threat due to barriers of entry. To add to its advantages, consumers in this sector possess brand loyalty to an extent that is uncommon in the present day.
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Unfortunately, shares at BAT slipped on June 12 after it reported that it had lost cigarette market share for the first time in years due to slower sales growth. Still, revenues from its new product categories have been promising with its Vype and Vuse vaping pens projected for revenue growth between 30% and 50% for the full year.
In February BAT increased its dividend by 4% to 203p for the full year. This comes out to a quarterly dividend payment of 50.75p per share. This represents an attractive 7% yield at the time of writing.
Royal Dutch Shell
Royal Dutch Shell (LSE: RDSB) is one of the largest oil and gas giants in the world, and the largest company in Europe going by 2018 revenues. Shell’s footprint spans every area of the oil and gas industry, making it a suitable target for those on the hunt for companies with a wide moat. Oil prices entered a bear market in early June as swelling supply has generated downward pressure.
This should not deter income investors. Shell has pledged huge returns for investors if crude maintains an average price level of at least $60 a barrel into the next decade. The company forecasts that its new projects will generate enough cash to fuel increases to dividends and buybacks from 2021 to 2025. Shell last paid out a quarterly dividend of 36.97p per share. Currently, this represents a solid 5.8% yield.
National Grid
National Grid (LSE: NG) owns regulated transmission and electricity generation facilities in the United Kingdom and the United States. As a utility with a wide moat, National Grid is naturally an attractive target for income investors. However, there are substantial political risks going forward especially if a general election is called. Jeremy Corbyn has vowed to re-nationalise National Grid and purchase shares at a substandard rate.
We should factor in current polling and odds of a general election being called, which reduces the risk surrounding the company. Its tasty dividend more than makes up for these remote threats. National Grid last increased its payout for fiscal 2019 to 47.34p per share. This represents a 5.6% yield right now. National Grid is poised to bump up its annual investment to £5 billion in the next two years, which will support its defensive appeal.
