10 high-yield FTSE 100 stocks for income seekers

Taking a Dividend Dogs approach to high yield, Stockopedia's Ben Hobson finds 10 great blue-chip payers.

UK dividend payouts came within a whisker of hitting £100 billion in 2018. Against a backdrop of  volatility and strong downward pressure on prices through the year, income stocks came good.

Overall, the £99.8 billion total payout was up by 5.1% on 2017, according to analysis by Link Asset Services. That figure was propelled by robust earnings growth, some special payouts that beat expectations and the added bonus of a fall in the value of sterling (which catalysed dividends paid in foreign currencies).

It was evident earlier in the year that a rebound by a number of large mining stocks was contributing to a larger overall payout to investors. Banking stocks also did well but there was a general uplift across the market, with nine of the 10 main sectors recording dividend growth.

Looking ahead, Link is forecasting that dividends (excluding special payouts) will grow by 5.3% to £101.1 billion in 2019. Again, the year-on-year figures will be boosted by the impact of lower sterling.

• UK dividends tipped to top £100bn for first time in 2019

With interest rates still low and price pressure sweeping through the market late last year, the appeal of dividend stocks is understandable. In recent weeks we've used this column to look at how dependable, large-cap stocks were among those that held up the best in 2018.  It's precisely those kinds of shares that are often some of the biggest dividend payers. So the evidence certainly suggests that funds are already flowing into the big income plays.

That said, the market-wide slide last year was unforgiving. Those falling prices have pushed up yields and made dividend stocks even more appealing. But, as always, it’s important to consider what high yields really say about stocks, and to thinks about the investment merits of companies on a case-by-case basis.

High yields for each sector

This week we've taken a "Dividend Dogs" inspired approach to the market and used this famous strategy to find the highest yielding stocks from each of the 10 main industry sectors across the FTSE 100.

While this kind of sector diversification won't grab you the very highest yields in the blue-chip index, it won't leave you over-exposed to just a few sectors either. This is important because, as dividend aficionados will know, by chasing high yield there's a tacit acceptance in the Dividend Dogs strategy that some of the stocks it picks up may well be unloved by the market. So diversification is essential.

The original idea of Dividend Dogs was to scoop up the highest yielding shares and then refresh the portfolio each year. It has its detractors - and some have sought to improve on this strategy over the years - but the underlying philosophy remains popular. So what options does it offer right now? Here are the current highest yielders across the main sectors in the FTSE 100: 

Source: Stockopedia  Past performance is not a guide to future performance

The results of this strategy screen tally with what the latest dividend data is saying. For a start, yields on equities have been rising. Certainly, most of these stocks are currently yielding way ahead of their five-year averages. EVRAZ (LSE:EVR), the miner, takes top spot with a yield of 14.4%, but groups like Persimmon (LSE:PSN), Standard Life Aberdeen (LSE:SLA), Vodafone (LSE:VOD) and Centrica (LSE:CNA) are up above 9%, which has been unusual for this strategy in recent years.

Importantly, there are concerns. Companies like Standard Life Aberdeen, Vodafone, Centrica, Imperial Brands (LSE:IMB) and Micro Focus International (LSE:MCRO) had a rough ride in 2018. While this strategy assumes that battered blue chips often recover, hard questions are being asked of groups like Vodafone and whether their reputations for robust dividend payouts can continue much longer.

As always, the quest for income investors is to strike a balance between high yield and dependable payouts that aren't at risk of being cut. At the intersection of those two factors is the issue of company quality and the ability for management to keep payouts intact. High yields are set to be a feature of the market in 2019, which is good news for investors faced with market volatility. But avoiding dividend traps by checking the credibility of those yields is as important as ever.

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