I’m always on the lookout for good dividend shares. But how do I narrow the market to a manageable number of candidates? I usually start by identifying the 10 shares offering the biggest dividend yields.
Forecasts themselves don’t change very much month to month. But shares prices do, reflecting earnings updates, news, and general market sentiment. So I make this a regular exercise, and a key part of keeping myself aware of the overall dividend picture.
The following table includes the 10 biggest FTSE 100 dividend yields I can find right now.
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| Company | Recent price | 12-month change | Forecast yield |
| Persimmon | 1,407p | -40% | 16.7% |
| M&G | 208p | -2.2% | 8.9% |
| Vodafone | 92.3p | -26% | 8.4% |
| Rio Tinto | 6,375p | +20% | 8.3% |
| Barratt Developments | 458p | -24% | 8.1% |
| Taylor Wimpey | 117p | -19% | 8.0% |
| Phoenix Group Holdings | 637p | -4.8% | 7.8% |
| Legal & General | 260p | -8.6% | 7.2% |
| abrdn | 210p | -12% | 7.1% |
| British American Tobacco | 3,030p | -4.5% | 7.0% |
The Persimmon forecast is still based on last year’s special dividend. But even if the ordinary dividend is maintained, that would be enough to yield 8.9%.
Takeaway
My first takeaway from comparing with previous times I’ve checked is that many of these yields have declined. That’s not because of any dividend weakening though. It’s because share prices for big-dividend shares have been climbing.
Rio Tinto’s yield is one of the biggest fallers. The company cut its interim dividend last year, largely due to weakening demand from China. The share price promptly went into decline. And even the reduced dividend looked set to yield more than 10%.
But since November, Rio Tinto shares have climbed 44%. The momentum has continued in 2023, perhaps due to China’s Covid reopening. Have investors just realised that China will surely get back to growth, as most people thought all along?
Financial
I’m pleased to see financial sector stocks coming back, including insurers and investment managers. Legal & General shares have gained 28% since mid-October. The forecast dividend yield has declined as a result, but 7.2% still looks very attractive to me.
Similarly, Phoenix Group Holdings is up 26% over the same period. And abrdn shares had a very sharp upturn in October, soaring a massive 60% since then. Even after that, forecasts still suggest a 7.1% dividend yield.
The main thing I take from this is the best time to buy is often when pessimism is at its worst across a sector. And that pessimism is often reflected in dividend yields.
Caution
Of course, dividends can always be cut, and none of these is guaranteed. So I definitely wouldn’t buy shares simply on the size of the yields. No, I’d do my own careful research to get a handle on which stocks I think are cheap, and which might genuinely be in trouble.
But I do think that following yield trends over time can give us a good idea of where investor sentiment is going. And that can surely help the contrarians among us.
