The rising cost of living has made dividend income from shares more valuable than ever. For this article, I’ve pulled together the latest dividend forecasts for three popular FTSE 100 shares.
BT Group: a tight squeeze?
Telecoms giant BT Group (LSE:BT.A) has long had a reputation as a popular high yield dividend stock. But the reality is the company’s dividend payout was suspended in 2020. When the payout restarted last year, it was cut by 50% from its 2019 level.
Can BT rebuild its reputation as a blue-chip income stock? The latest broker forecasts suggest that chief executive Philip Jansen will stick to his commitment to maintain and slowly increase the payout.
- BT 2023 forecast dividend: 7.78p per share
- Forecast dividend yield: 6.5%
BT’s problem has always been that it has so many other demands on its cash. The dividend costs about £750m per year.
In addition to this, the group expects to spend £4.8bn per year on capital expenditure while it builds out a UK-wide fibre network. Rising interest rates may increase the charges on the group’s £19bn net debt, too.
Scrapping the dividend must be tempting, but I think it’s very unlikely. BT’s dividend looks safe enough to me.
Imperial Brands: a strong dividend
Warren Buffett once said that he liked the cigarette business because “It costs a penny to make. Sell it for a dollar. It’s addictive”.
Admittedly, he made these comments in 1987. His view may have changed. But the economics of this business hasn’t changed much.
Tobacco group Imperial Brands (LSE:IMB) generated an underlying operating profit margin of 47% in its most recent financial year. The group generated £2.6bn of surplus cash during the period, comfortably covering the £1.3bn cost of its annual dividend.
City analysts expect the group’s strong performance to continue. They’re predicting further dividend growth next year, supporting an attractive yield:
- Imperial Brands 2023 forecast dividend: 148.7p per share
- 2023 forecast dividend yield: 7.2%
The big risk here is that tobacco usage will continue to decline, especially in the developed western markets where Imperial makes most of its sales. New regulations could also restrict sales more heavily.
I think these risks are already reflected in Imperial Brands’ 7% dividend yield. But I can’t be sure of the long-term outlook for this business.
Diageo: the quality choice?
Global drinks group Diageo (LSE:DGE) owns many of the world’s best-known spirits brands, including Johnnie Walker, Tanqueray, and Smirnoff.
Even though Diageo’s share price has fallen by around 10% this year, the stock still trades on 21 times forecast earnings. However, this pricey rating gives shareholders access to a business with near-30% profit margins and an impressive portfolio of well-loved brands.
Diageo’s dividend has not been cut for over 20 years, according to my research. Broker forecasts suggest this steady growth will continue:
- Diageo 2023 forecast dividend: 83.2p per share
- 2023 forecast dividend yield: 2.3%
My fear is that if Diageo disappoints the markets at all, the shares could fall sharply. For this reason, the stock is too expensive for me. However, I’ve said that before and been proved wrong.
On a long-term view, I think Diageo shares are probably worth considering at current levels.
