Rising interest rates and high inflation means that many investors are focusing on maximising the dividend income from their portfolio.
Here, I’ve gathered together the forecasts for three FTSE 100 stocks with a reputation for regular dividend payments.
Unilever: the best dividend?
Consumer goods group Unilever (LSE: ULVR) hasn’t cut its dividend for more than 50 years, according to my research. I don’t think a cut is likely anytime soon, either.
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However, there’s no doubt the owner of brands such as Magnum, Persil, and Dove has been hit hard by inflation. Management expects costs to have risen by €4.5bn in 2022. That’s putting pressure on the group’s profits, despite average price rises of more than 10%.
Unilever’s strengths lie in its big brands and global reach. I don’t see this changing, but I do think growth could be challenged by difficult economic conditions over the next couple of years.
Broker forecasts suggest a modest 3.5% dividend increase in 2023:
- Unilever 2023 forecast dividend: €1.79 (156p) per share
- Forecast dividend yield: 3.8%
The market is waiting to see what actions the firm’s incoming CEO will take to strengthen growth. I think the dividend is safe, but I’d be tempted to wait for a market dip to buy the shares.
Persimmon: wielding the axe
Housebuilder Persimmon (LSE: PSN) has already given shareholders notice that the generous dividend programme that’s been in place since 2012 has now ended.
In the firm’s latest trading statement, chief executive Dean Finch said that future dividends will be set at a level that “is well covered by post-tax profits”.
Persimmon has been paying out nearly 100% of its profits in dividends in recent years. My sums suggest the payout is likely to fall by at least 30-50% next year.
City analysts seem to agree. They’re forecasting a 40% drop in earnings in 2023, and a 50% drop in the dividend from the 2021 level of 235p per share:
- Persimmon 2023 forecast dividend: 114p per share
- Forecast dividend yield: 9.4%
The main risk I can see is that the housing market slowdown will worsen next year, requiring further cuts to the payout.
Even so, I think Persimmon looks fairly good value at the moment, on a medium-term view.
Next: Britain’s best retailer?
Next (LSE: NXT) clothing may not be everyone’s cup of tea. But from a financial point of view, I think this business could be Britain’s best-run retailer.
The company is known for its detailed, accurate guidance and clear plans for growth and shareholder returns. Next is also becoming a multi-brand business, selling a wide range of owned and third-party fashion brands through its online marketplace.
CEO Simon Wolfson recently confirmed guidance for earnings of 554.5p per share the year ending 31 January 2023. That would be an increase of 4.5% on last year and would comfortably cover the forecast dividend payout:
- Next 2023 forecast dividend: 190p per share
- Forecast dividend yield: 3.5%
If the UK economy goes into a deeper recession than expected next year, Next’s profits could slide. I’d wait for another market slump to buy the shares, but I think this retailer is still an attractive long-term pick.
