Today, I’m interested in looking at FTSE 100 stocks that currently yield over 5%. Are there any big dividend opportunities on offer right now? Let’s screen the market to find out.
I use Stockopedia’s screen function, which uses ‘rolling’ data. This combines past data and estimated forward data to enable a like-for-like comparison of ratios between companies with different reporting dates. Stockopedia also processes data on a ‘trailing twelve-month’ basis. That means that if there has been a recent interim results announcement, those results are incorporated into the computations to create a more up-to-date result.
FTSE 100 stocks yielding 5%
The screen produces a list of 24 stocks. That’s an impressive number – almost a quarter of the index.
Centrica and SSE are at the top of the list, with rolling yields of 8.9% and 7.3% respectively. This is due to the fact that utilities are heavily out of favour right now, and that has pushed yields up.
It appears that the FTSE 100 is a happy hunting ground for 5% dividend stocks. However, experienced dividend investors understand that you should never just buy a stock simply for its high yield.
One thing to always check is the dividend coverage. This indicates whether a company can afford to pay its dividend out of its earnings. It’s calculated by dividing earnings per share by dividends per share. Ideally, you want a ratio of at least 1.5.
So let’s add that criterion in and see what happens.
All of a sudden, that list of 24 stocks gets chopped down to just eight.
From that list, my preferred plays are Lloyds Banking Group, Legal & General Group and Aviva. All three have big yields, decent coverage and strong operating momentum which is powering dividend growth.
Disclosure: Edward Sheldon, CFA owns shares Legal & General Group, Lloyds Banking Group and Aviva.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.