If you’re looking for top blue-chip shares paying high dividends, you’d want to know about FTSE 100 companies offering yields of more than 8%, wouldn’t you? Before I tell you about one of my long-term favourites, I first want to look at another big yielder reporting Thursday.
It’s property developer U and I Group (LSE: UAI), and it’s just announced a total dividend of 17.9p per share for the year ended 28 February. That comprises a big special dividend of 12p, on top of ordinary dividends amounting to 5.9p, and it represents a yield of 8.8% on Wednesday’s closing price.
The shares have put on 5% as I write these words, but we’re still looking at a relatively modest forward P/E of under 12 based on the current year’s forecasts, and that would drop as low as 8.2 should 2020 predictions come good.
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The property regeneration specialist operates in a business that can provide lumpy returns on a year-by-year basis, but I find it an attractive long-term segment of the industry.
U and I reported a record £68.3m in development and trading gains, which was at the top end of expectations, and that translated to a 12.2% post-tax total return with net asset value per share climbing from 278p to 303p.
It’s all part of the firm’s move to reposition its investment portfolio to target areas with strong growth potential — the company has its sights firmly set on the London City region, Manchester and Dublin — and assets worth £53.2m were sold at or above book value.
Chief executive Matthew Weiner spoke of the company’s “clear focus on regeneration and a commitment to delivering sustainable value for shareholders,” echoing its aim to achieve consistent post-tax returns of 12% per year. I’m seeing a cash cow here.
FTSE 100 dividend
My FTSE 100 pick is in a similar business, and it’s housebuilder Persimmon (LSE: PSN). I first spotted it back when housebuilders were firmly out of favour, and I saw it was using its spare cash to hoover up plots of land when the good earth was being sold off cheap.
That looked like a canny long-term strategy to me, and Persimmon shares have more than quadrupled over the past decade while the FTSE 100 has gained just 21% — with handsome dividends thrown in as an extra.
The share price has actually gone off the boil a bit of late, and has fallen back a little since last October’s peak. I think that’s for a number of reasons. I reckon there’s probably a Brexit effect, though I really don’t think that momentous event should do any great damage to the property market — our chronic housing shortage will be here for some time yet.
The slowing of earnings growth is surely the bigger driver, as five years of annual double-digit growth is set to come to an end with analysts forecasting only 3%-4% annually for this year and next. On top of that, some are fearing for the FTSE 100’s top dividends as a number of them are seeing thinner cover than is ideal.
Persimmon’s forecast dividend is covered less than 1.2 times, but it’s a well-managed and strongly cash-generative business, and I can see it holding up.
