As a veteran investor with 37 years of experience, I’ve become a big fan of dividend investing. But as cash dividends aren’t guaranteed, they can be cut or cancelled at any time. Also, almost all of the dividends paid out by UK stocks come from a select group of powerful FTSE 100 shares.
FTSE 100 shares pay huge dividends
According to one recent report on UK dividends, FTSE 100 firms are set to pay out a whopping £85.8bn in dividends to shareholders this year.
However, one problem with this torrent of cash is that it’s generated by a select few mega-cap companies. Indeed, over half (54%) of Footsie dividends in 2023 are set to come from just 10 of its members. That looks pretty highly concentrated to me.
Should you invest £1,000 in TUI 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 TUI made the list?
Three Footsie dividend champions
For the record, analysts expect this trio of FTSE 100 members to pay out the three largest cash dividends by size this year:
| Company | Shell | Glencore | Rio Tinto |
| Sector | Oil & gas | Mining | Mining |
| Market value | £175.9bn | £62.9bn | £95.7bn |
| 2023 dividend | £5,958m | £5,744m | £5,561m |
| Dividend yield | 3.4% | 9.3% | 5.6% |
| Dividend last cut in | 2020 | 2013, 2015, 2016, 2020 | 2016 |
Cash payouts for 2023 for these three dividend Goliaths range from almost £5.6bn at mega-miner Rio Tinto to almost £6bn at oil supermajor Shell.
Together, these three mega-cap firms account for almost £17.3bn of expected dividends from the FTSE 100 this year. That’s 20.1% of the Footsie’s total cash return. Wow.
My table also neatly demonstrates how even the largest London-listed companies are sometimes forced to cut their dividends. For example, Rio Tinto cut its dividend during 2016’s global commodity bust.
Also, during 2020’s pandemic panic, even the mighty Shell was forced to cut its dividend. And Glencore cut its own payout four times between 2013 and 2020. In short, even FTSE 100 super-heavyweights can’t absolutely guarantee their future cash payouts.
These dividends are well covered
When deciding which shares to buy for their cash payouts, I always look beyond their headline dividend yields. I also check how well-covered these regular payments are. And if trailing company earnings don’t comfortably cover dividend yields, this gets a black mark from me.
Fortunately, dividend cover at these three firms looks fine to me. It ranges from a rock-solid five times at Shell to over 2.3 at Glencore to a more modest 1.5 times at Rio Tinto.
I’d gladly buy all three shares today
For the record, my wife already owns Rio Tinto shares, which she bought for our family portfolio in late June last year. Rio shares have been knocked back recently, falling 10.6% over the past month. But we will definitely hold on to this FTSE 100 stock for its future cash dividends and potential capital gains.
Furthermore, I’d happily buy shares in Glencore and Shell at current price levels. And that’s despite my worries about red-hot inflation, sky-high energy bills, rising interest rates, and the risk of a prolonged UK recession. But I shall have to wait until the new tax year starts on 6 April!
