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.

Should you invest £1,000 in Domino's Pizza Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Domino's Pizza Group Plc made the list?

See the 6 stocks

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%.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »