UK Markets open in 5 hrs 20 mins

This is my top FTSE 100 dividend stock yielding 5%+ right now

Edward Sheldon, CFA
Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.

If you’re looking for high-yield dividend stocks that sport yields of 5%, or higher, you’ll find no shortage of options within the FTSE 100. According to Stockopedia, there are currently 29 companies within the index that offer such rolling yields.

However, some of these stocks are likely to be better dividend investments than others. Many of these companies face considerable headwinds at present which means their payouts may not be sustainable. With that in mind, I reveal my top high-yield FTSE 100 dividend stock right now.

High-yield FTSE 100 stocks

Screening that list of 29 names for companies with rolling dividend coverage of 1.5 times or more (the minimum level I’m generally comfortable with for dividend safety) chops the list down to 12 names. Sorted by market-cap, these are:

Name Yield % Rolling Div Cover Rolling
British American Tobacco 7.66 1.51
Lloyds Banking Group  5.63 2.22
Barclays 5.15 2.56
Carnival 5.01 2.17
BT 7.74 1.72
Aviva 7.65 1.73
Legal & General Group  6.63 1.81
WPP 6.42 1.68
International Consolidated Airlines 5.69 3.39
Barratt Developments 5.17 2.13
ITV 6.13 1.67
Kingfisher 5.12 2.08

Now looking at that list, a number of those companies face near-term headwinds. For example, British American Tobacco is facing declining smoking rates; Lloyds faces Brexit uncertainty; BT has a ton of debt and a huge pension deficit; and Carnival recently issued a profit warning. So, you do have to be careful investing in these kinds of companies.

To my mind, the most attractive stock pick from that list is Legal & General (LSE: LGEN). If I was looking for a high-yield FTSE 100 stock to invest in today, I’d go with the financial services giant.

Diversified business

What I like about Legal & General is that it’s a diversified business. Not only is it one of the largest asset managers in the UK, but it’s also a major player in insurance, retirement solutions, and pension risk transfer (it describes the opportunity in its retirement segment as “immense’). I see this diversification as a plus from a dividend-investing perspective, as it means there’s less chance of profits taking a significant hit.

Of course, LGEN still faces risks. For example, if the stock market takes a dive, the group’s profits are likely to fall because a proportion of its profits are linked to assets under management. However, compared to many other high-yielders, there’s less risk, in my view. 

Attractive dividend 

Turning to the dividend itself, there’s a lot I like about Legal & General. For starters, the yield is far higher than the average FTSE 100 yield. And dividend coverage is solid, which suggests the payout is sustainable.

Furthermore, the company has a solid dividend growth track record, having strung together nine consecutive increases now (you can be sure that management will be keen to hit 10). Analysts expect healthy dividend growth this year and next, meaning the payout should provide inflation protection going forward.

Bargain valuation

Finally, the valuation looks highly attractive. Right now, the stock trades on a P/E of just eight, which I see as a bargain. All things considered, I believe Legal & General is a top high-yield play. 

More reading

Edward Sheldon owns shares in Legal & General, Lloyds Banking Group, Aviva, WPP, and ITV. The Motley Fool UK has recommended Barclays, Carnival, ITV, and 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.

Motley Fool UK 2019