2021 dividend forecasts: Lloyds, BP, Tesco

Roland Head looks at the latest dividend forecasts for these popular FTSE 100 shares. He explains why he’s looking forward to 2021.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

This year’s been difficult for income investors. Many big dividends have been cut and interest rates on cash savings have also fallen. Fortunately, dividend forecasts for 2021 suggest many big payers will return to regular payouts next year.

Today, I’m going to look at the dividend forecasts for three top FTSE 100 income stocks — Lloyds Banking Group (LSE: LLOY), BP (LSE: BP) and Tesco (LSE: TSCO).

Lloyds battles regulator for dividend release

At the start of April, the UK’s banking regulator ruled that none of the big banks would be allowed to pay a dividend this year. So far, nothing’s changed.

However, Lloyds’ third-quarter results suggested that bad debts haven’t risen as quickly as expected so far this year. Lloyds returned to profit during the quarter with a pre-tax profit of £1bn and a return on tangible equity of 7.4% — I see that as a respectable result in the circumstances.

The bank’s regulatory CET1 ratio — which measures surplus capital — also looks strong to me, at 15.2%. That’s well above the 11% minimum specified by the regulator. To me, this suggests that unless losses worsen as we head into 2021, the bank should have enough spare capital to resume dividend payments.

City analysts seem to agree. Their dividend forecasts suggest a payout of 1.54p per share in 2021, which would give the stock a yield of 5.5%.

BP dividend forecast backed by management

Some speculation is involved in attempting to predict how much cash Lloyds will be able to pay out next year. With BP, the picture looks much more certain. Although the exact yield will be affected by the USD/GBP exchange rate, I’m confident the forecast yield of 9% is realistic.

The reason for this is that new CEO Bernard Looney recently laid out a new fixed dividend policy, payable at 5.25 cents each quarter for the foreseeable future.

Surplus cash over and above this amount will be used to fund share buybacks, not dividend growth. This policy makes sense given that Looney has also committed to cutting oil and gas production by 40% over the next 10 years.

Although investment in low carbon energy is going to be ramped up, I think it’s fair to assume BP will become a smaller company. Buying back shares will help to offset BP’s shrinkage and support higher earnings per share.

I can see some attractions in BP shares. This is a stock I’d consider owning for income.

Every little helps: Tesco lifts payout

The UK’s biggest supermarket has had a busy year. Sales surged during lockdown. Although Covid-related extra costs kept profits largely flat, I think there’s no doubt it’s been a good year overall for Tesco.

New chief executive Ken Murphy seems to agree. One of his first acts after joining was to issue the firm’s interim results. These included news of a 20.8% increase to the interim dividend.

This half-year payout will rise to 3.2p per share this year. Analysts expect a payout of 7.9p for the year ending 29 February 2021. This would give a dividend yield of 3.8%.

Looking ahead to the firm’s 2021/22 financial year, dividend forecasts suggest the payout will rise by a further 15% to 8.9p. That would give Tesco stock a dividend yield of 4.3%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »