Dividends are an important part of investing and I’m always hunting for stocks with generous payouts. Now, different sources give us different predicted yields for our top dividend stocks. So for my purposes here, I’ll go with what Yahoo! Finance says.
There are some very big dividends in the FTSE 100, at least as far as forecasts go. And we perhaps shouldn’t put too much trust in forecasts. But they can help us narrow down our search for investment income.
#1: M&G
M&G (LSE: MNG) easily leads the FTSE 100 in the dividend stakes, with a whopping 11% forecast yield. If that held up, we could almost recoup an investment in just nine years — and still own the shares.
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Share price weakness in 2023 plays a big part in the huge yield. M&G shares are down 17% since the 2019 demerger from Prudential.
For an investment company, considering the state of the markets in that time, I reckon that’s a respectable result.
I really don’t know if that yield will come off this year. But forecasts currently suggest it will be maintained through to 2024 too, so that offers a bit of support.
Either way, for me it’s long-term dividend prospects that matter. And I wouldn’t let any fragile short-term stock market outlook put me off.
M&G is on my list of 2023 buy candidates.
#2: Phoenix Group
Phoenix Group Holdings (LSE: PHNX) has the next biggest dividend yield, at 9.3%.
We’re looking at another declining share price performance, with a 16% fall over the past five years.
This time it’s part of the hammering taken by the insurance business.
But again, we see no sign yet of any dividend cuts in the pipeline.
A weaker earnings outlook for the next couple of years means I’m not too confident of this year’s payment, though.
Still, at least Phoenix lifted its 2022 dividend by 5%, which was encouraging.
But I do think 2023 could prove to be a fair bit tougher, and I’ll be happily surprised if there’s another 5% hike this year.
But once again, I think I’m seeing a good long-term income buy at an attractive stock valuation.
#3: Vodafone
Vodafone (LSE: VOD) has the third biggest forecast dividend yield in the FTSE 100 right now, at 8.7%.
Dividends have been steady for a few years now, but the share price had fallen quite hard.
This time, we’re looking at a five-year drop of 53%.
The big problem is, Vodafone has always struggled to cover its dividends with earnings.
In fact, it’s just not been achieving it. Earnings and dividends have been pretty much equal, and that doesn’t look like changing any time soon.
Meanwhile, Vodafone carries heavy debt. And it’s been using some of what capital it has in a share buyback.
It clearly prioritises dividends, which is often good. And I wouldn’t be surprised to see the annual payments continue.
But when I consider the lack of cover by earnings, and the debt, I reckon Vodafone is destroying overall shareholder value.
I might buy two of these big-dividend stocks when I have the cash to invest, but not Vodafone.
