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Top 20 FTSE Dividend Paying Stocks

Pound notes

This Monday’s market rout has triggered a spike in yields, especially among oil companies, which bore the brunt of the 30% collapse in the price of crude.

The dividend yield on narrow-moat Royal Dutch Shell (RDSB) has now pushed above 9% following a near 20% slide in the share price on Monday, the worst share price fall in percentage terms in the company’s long history. This move propels Shell to number three on our high dividend list, from number five in February. BP’s shares also saw a double-digit slump in one day, and the dividend yield spiked above 8%. BP was number four in our dividend list last month but has been leapfrogged by advertising giant WPP (WPP), whose shares have tanked in the coronavirus crisis.

Shell’s share price of around £13.30 means the company is trading around 55% below its Morningstar fair value of £29 – Shell is now a five-star rated stock, having been rated as four stars in February (the higher the star rating, the more undervalued the company is).

However, high yields are likely to be a warning sign to investors here - as Morningstar analysts point out, the oil price cash could lead to dividend cuts across the industry.

Cigarette maker Imperial Brands (IMB) remains at the top of our monthly of the highest FTSE dividends – its trailing 12-month yield is 12.58% and forward yield is an alarming 17.54% (compared with 10.3% and 14.84% in February). While the forward yield is above the upper range of dividend yields we consider, at least some of the spike in yield can be put down to market movements.

Tobacco companies are supposed to be the ultimate defensive stock, in that smoking demand is relatively constant during troubled times. While the shares have proved more resilient than some during Monday’s carnage, the share are still off over £4 since the start of the year at around £15.

Morningstar analysts are maintaining their £35 per share “fair value” estimate – and they think the company has a “wide economic moat”, which gives it a significant advantage over rivals. “The stock price does not appear to be pricing in any probability of a turnaround, however, and we think the shares are attractive,” says Philip Gorham. Some uncertainty about the company’s future has been eased with the appointment of a new CEO, he argues.

BT is yielding nearly 12%, a big jump since February when the shares were yielding 9.4%, as the shares have got caught in the market panic.

Within our top 20, cruise company Carnival (CCL) is the most exposed to a downturn in tourism following the coronavirus outbreak: its shares have been hammered so far this year – at £16 they are substantially below the Morningstar fair value estimate of £42.30 per share. Morningstar analyst Jaime Katz acknowledges the effect on short-term demand for cruises because of the coronavirus – particularly as much of the new demand for cruises is driven by Chinese tourists – but think the long-term demographics of rich retirees are favourable for the industry. As a result of the share price fall, Carnival has risen from number 10 on our list in February to number 7 in March.

 

 

 

Trailing

Forward

Economic

Star

Stock

Ticker

Yield %

Yield %

Moat

Rating

Imperial Brands

IMB

12.58

17.54

Wide

5

BT

BT.A

11.76

11.76

Narrow

5

Royal Dutch Shell B

RDSB

9.22

9.13

Narrow

5

WPP

WPP

8.28

8.28

Narrow

5

BP

BP.

8.17

8.15

Narrow

4

HSBC

HSBA

8.09

8.09

Narrow

4

Carnival

CCL

8.02

7.89

Narrow

5

British American Tobacco

BATS

6.54

6.77

Wide

5

SSE

SSE

5.85

5.84

Narrow

2

Vodafone

VOD

5.58

5.58

Narrow

4

GlaxoSmithKline

GSK

5.02

5.77

Wide

3

BAE Systems

BA.

3.78

4.62

Wide

2

Johnson Matthey

JMAT

3.61

3.61

Narrow

4

Pearson

PSON

3.42

3.51

Narrow

4

Meggitt

MGGT

3.30

3.42

Narrow

4

Unilever

ULVR

3.28

3.19

Wide

4

AstraZeneca

AZN

3.01

3.01

Wide

3

Smiths Group

SMIN

3.26

3.26

Narrow

4

Victrex

VCT

2.96

2.96

Narrow

4

Reckitt Benckiser

RB.

2.88

3.38

Wide

3

 

Dividend Updates

At the tail end of earnings season, a number of companies on our list have announced full-year dividends: WPP is holding its dividend at 6op per share. The advertising giant is heavily exposed to China and has instituted a travel ban for many international staff; the company’s shares, which are sensitive to the health of the global economy, have crumbled so this year, and they yield above 8%.

Consumer healthcare company Reckitt Benckiser has upped its full-year dividend to 174.6p per share, an increase of 2.28% on 2018’s payout.

Away from our top 20 list, the mining sector continues to reward investors with number payouts – Rio Tinto has increased its full-year dividend by 24% to $3.82. Mining sector payouts to UK investors hit nearly £16 billion in 2019, a 42% increase on 2018 if special dividends are included, according to Link. But these payouts from commodity firms are expected to slow in 2020, bringing down the overall income pool. None of the listed FTSE 100 miners have an “economic moat”, according to Morningstar analysts. If they did, the companies would easily make it on to our high-yielding list: Rio Tinto yields just under 7%, for example, BHP Billiton yields nearly 5%.

How We Select Companies

Morningstar.co.uk has filtered 20 income shares using a range of criteria to determine which are the highest dividend paying stocks on the UK stock market, which still look sustainable.

Each income stock must have an “economic moat”, which means that the company has a sustainable competitive advantage; only stocks with a “narrow” or “wide” moat make the cut. We then add in the Morningstar Star Rating, which indicates whether the company’s shares are trading below or above their fair value. Some of the companies on this list, including Pearson and BP, are rated as four stars by Morningstar analysts, meaning they are currently undervalued.

We also look at the historic yield (trailing 12 months) and compare that with the forward yield.

Another filter is then added to screen for those companies whose five-year dividend yield is less than 15%. This adds an element of consistency – for example, a one-off special dividend would skew the yield in one year to an artificially high level – and remove companies whose share price plunge has pushed the yield up significantly.

There is an inverse relationship between share prices and yield – the dividend yield on a company will rise when the share price falls and vice versa. That’s why the top 10 on our list is dominated by companies with a Morningstar Rating for Stocks of 5 and 4 stars, which means analysts think they are trading below their fair values.

We have included information on whether the stock is a member of a Morningstar index: for example, Imperial Brands is a member of “Morningstar Global Consumer Defensive” and “Morningstar Global Tobacco”, among others.