Fed up with poor performance of the FTSE 100’s big dividend payers? Try these stocks instead

Some of the FTSE 100’s more well known companies pay out good dividends, but share price performance has not been so rewarding. Why not try a different approach?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Consider BT, HSBC, Royal Dutch Shell, or Vodafone. For many investors they are reliable stocks, providing a backbone to an investment portfolio. After all, they are low risk and provide good income. Then again, consider their share price performance.

BT shares have fallen 30% over the last year, while today’s share price is barely more than a third of the price five years ago. Sure yield is handsome — almost 10%, but such an appalling share price performance is enough to shake any investor’s confidence.

Or take HSBC, whose yield on the shares is close to 7%. While the share price has performed better than BT’s it is still 15% down over the last year, and flat over the last five.

Then there’s Royal Dutch Shell, whose shares have fallen by a fifth over one year, and are flat over five. Its dividend yield on the other hand is north of 7%.

Finally, there is Vodafone, with dividends at 5%. This company has actually seen shares rise over the last year, but the share price today is less than a half of the price five years ago.

Is it worth it for the dividends?

As long as these companies are forking out in excess of 5% a year, some shares in the companies might be worth hanging onto, especially if your main motivation for investing is income.

On the other hand, consider how dividends as a percentage of your investment can fall over time. Take BT as an example. The dividend may be somewhere off in the stratosphere, but an investor who bought into the company five years ago would now be receiving a yield that is the equivalent of 3% of the original investment.

Royal Dutch Shell has a fundamental problem. Its core product is the very thing that is vexing those who worry about climate change. It will gradually reduce reliance on oil, but you could balance your risk by also investing in good dividend paying stocks or funds that offer exposure to renewables.

Consider alternatives

Drax Group (LSE:DRX), for example, with a dividend yield at 5.25%, is now working on carbon capture technology. Or there is the new Octopus Renewables Infrastructure Trust, which is targeting a 3% dividend yield in year one and 5% in year two.

As a complement to HSBC, Lloyds Bank (LSE:LLOY) pays out a dividend of 5.5%, but now that the PPI disaster finally seems to be receding into its past, the company is turning heads with its digital strategy.

Or, if you like the idea of gaining exposure to 5G, but are not comfortable with the share price performance of either BT or Vodafone, consider a company like  Aveva Group (LSE:AVV) — it’s dividend yield is a modest 1.3%, but shares have trebled over three years.

Diversification is an important part of investing. I am not saying that if you are an income investor you should eliminate BT, HSBC, Vodafone, and Royal Dutch Shell from your portfolio altogether. But I do suggest you consider spicing it up with exposure to other dividend payers that might also offer growth, too.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

The only FTSE 100 shares I own at the start of 2025

This writer currently owns 14 different FTSE 100 shares in his portfolio. Here's a quick look at what they are…

Read more »

Investing Articles

This FTSE 250 stock’s jumped 12% after today’s results! Will it finally make me rich?

Harvey Jones is thrilled to see his Ocado shares jump this morning following an upbeat set of festive results. But…

Read more »

Investing Articles

Here’s why Oxford Nanopore Technologies stock is up 15% in the FTSE 250

This innovative FTSE 250 stock has had a solid start to the year, rising 15% in just two days. Is…

Read more »

Investing Articles

Where’s the stock market heading in 2025? Here’s what the experts say

After a rocky start to the year, Mark Hartley is on a mission to find out where the stock market…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£11,000 in savings? Here’s how investors could consider aiming for £3,975 a year of passive income!

Relatively small investments in this FTSE 100 high-yield star could generate much higher passive income over time, especially using dividend…

Read more »

Aerial view of York downtown at night
Investing Articles

Is it worth me buying National Grid shares for around £9 after a 14% drop?

National Grid shares have fallen significantly from their post-rights issue high seen in September, which indicates to me a possible…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

As the Diageo share price falls another 6% in 2025, what should investors do?

The rise of GLP-1 drugs is sending the Diageo share price lower. But Stephen Wright thinks investors should try to…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s what £10,000 invested in Greggs shares on 2 January is worth now…

Greggs' shares have been among the most popular on the FTSE 250 in recent years, but 2025 brought bad news…

Read more »