If you’re in the market for high yield FTSE 100 dividend shares then these are the choices I think should be top of your list.
Not every company can support a market-beating dividend with enough cover from its earnings to be sustainable in the long term. In 2019 the FTSE 100 had an average dividend yield of 4.35%.
Some firms will reinvest any surplus to support growth, buy back shares to improve the value of what current shareholders own, or take over profitable, faster-growing rivals to boost their bottom line.
But there are still large, stable multinationals that comfortably outstrip the market average in handing out cash as shareholder dividends.
For most private investors, choosing investments is a case of waiting for a chance to buy the best FTSE 100 shares when they are not wildly overvalued.
Now could well be that time for Royal Dutch Shell (LSE:RDSB), as its price-to-earnings ratio has dipped under 10.
Shell also supports a whopping 6.7% dividend at last count. While none of us can know the future, I would suggest Shell offers one of the best opportunities for a solid buy-and-hold investment.
The oil giant reported 0.3p earnings per share in 2015, and earnings per share has been on a rocket ride since then. A year later we saw that figure reach 0.58p, then it tripled in 2017 to 1.8p, while 2018 added 55% growth to hit 2.8p.
Looking ahead, a consensus of City analysts have forecast 23% earnings growth in 2020.
Shell chief executive Ben van Buerden will confirm these numbers, as well as the Q4 2019 interim dividend, in results out on 30 January. Buying quality shares ahead of results is normally a solid move for capital appreciation.
GlaxoSmithKline (LSE:GSK) has a wide economic moat. It is a market leader in respiratory drugs to treat asthma and medications for HIV. It owns products that none of its rivals can sell, which gives it a clear long-term advantage.
Its three top-selling brands are HIV drugs Triumeq and Tivicay, and prescription asthma medication Advair. Together they contributed to nearly $9bn in sales in 2018.
It would be hard to find a more solid FTSE 100 company, unless the world wakes up one day and stops needing prescription pharmaceuticals.
GSK is also consistently one of the FTSE 100’s largest dividend payers. In five out of the last six years it has featured in the top five, and took sixth place in 2019, only just squeezed out thanks to a surprise $1bn special dividend from mining giant Rio Tinto.
GSK’s 2019 dividend is also paid like clockwork. 2014’s yield was 5.8% with 19p per share paid per quarter and 23p paid in Q4. The same exact payments continued in 2015 (plus a 20p per share special dividend), in 2016, 2017, and 2018 on a dividend cover growing to 1.5 in 2018.
While many early-stage private investors seek their fortunes in long-shot unprofitable gold miners, or speculative AIM shares with patchy histories, the highest-yielding FTSE 100 shares — with investments allowed to compound over time — are the simplest way to make yourself richer and your portfolio larger.
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Tom Rodgers owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.
Motley Fool UK 2020