10 highest-yielding FTSE 100 shares right now

29th December 2021 15:27

Income investors had more to cheer in 2021 following a mauling the previous year as companies scrapped pay-outs during the pandemic. These are best blue-chips dividends on offer today.

Bumper payouts from BHP (LSE:BHP) and Rio Tinto (LSE:RIO) brightened the mood among income investors in 2021, as the UK's overall dividend haul rebounded from the previous year's pummelling.

Banks including Lloyds Banking Group (LSE:LLOY) and Barclays (LSE:BARC) also contributed to the much-improved figure after regulators ended their ban on distributions in the sector.

Janus Henderson reports a faster-than-expected 45% recovery in dividend payments from UK companies across 2021, a reversal of the 43% decline experienced in 2020 when the pandemic caused BT (LSE:BT.A), HSBC (LSE:HSBA) and many well-known stocks to pull their shareholder payments.

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However, the asset manager sees growth moderating in 2022 as mining company dividends are set to be suppressed by the recent fall in prices of iron ore and other key metals.

In contrast, energy stocks including Shell (LSE:RDSB) appear well placed to step up dividends, and there could be further growth from banks as a result of holding excess capital.

Overall, the FTSE 100 currently yields 3.5% to provide some inflation protection for investors at a time of ultra-low interest rates. Based on the recent Janus Henderson report, the estimated 2021 yield across UK equities amounts to 4.1%, or 3.5% when excluding commodities, and is particularly attractive in comparison with other regions.

The overall US yield is forecast to be 1.3%, improving to 2.9% for emerging markets and 2.8% for the eurozone as the UK remains significantly undervalued relative to global equities.

London's biggest yielding stock at the end of 2021 was BHP at 10% after the Anglo-Australian mining giant distributed almost $18.9 billion as the world’s biggest dividend payer. That figure was beaten only by Vodafone (LSE:VOD) in 2014 when it shared the sale proceeds of US business Verizon.

High levels of cashflows stemming from surging commodity prices in early 2021 enabled mining giants to increase regular dividend payments as well as supplement them with special awards.

Other bumper yields recorded at the end of 2021 included Rio Tinto and gold miner Polymetal International (LSE:POLY) at more than 7% and steel and mining company EVRAZ (LSE:EVR) on 6.2%.

10 best FTSE 100 dividend yields
Company	Most recent yield (%)
BHP (LSE:BHP)	10.3
M&G (LSE:MNG)	9.2
Imperial Brands (LSE:IMB)	8.6
Persimmon (LSE:PSN)	8.3
British American Tobacco (LSE:BATS)	7.7
Polymetal (LSE:POLY)	7.4
Phoenix Group (LSE:PHNX)	7.3
Rio Tinto (LSE:RIO)	7.1
Vodafone (LSE:VOD)	6.7
Aviva (LSE:AV.)	6.6
Source: SharePad as at 29 December 2021

While mining sector yields should remain strong in 2022, the use of payout ratios tied to earnings means there's the potential for some pullback as a result of lower commodity prices. BHP, for example, operates with a dividend policy based on a minimum of 50% of earnings, but increased this to 85% thanks to better-than-expected results in 2021.

Iron ore prices also triggered big shareholder returns from Rio Tinto in 2021, but the mining giant is unlikely to pay as much in 2022 based on current prices.

Mining's contribution to the dividend haul of the FTSE 100 index faces a further blow should BHP go ahead with plans to unify its corporate structure in Australia from late January. Many trackers and funds will lose this valuable income stream if BHP is not in London's top flight.

Glencore (LSE:GLEN) can take up some of the slack because of its exposure to recent record prices for coal and aluminium and through its leading position in the transition metals that will be central to decarbonisation efforts, such as cobalt, zinc and nickel.

With the company's debt reduction efforts nearing completion, analysts at Deutsche Bank anticipate bumper shareholder returns in 2022 based on expectations for total shareholder returns in 2022/23 of $15 billion (£10.8 billion) or about 25% of market cap.

The lifting of constraints on banking dividends, along with rising interest rates and lower-than-expected loan impairments, means contributions from UK lenders should continue to improve in 2022.

Barclays most recently paid a half-year dividend of 2p a share on 17 September and embarked on share buybacks worth up to £500 million in addition to £700 million completed in April.

For the biggest yields, however, investors need to look at some of the usual suspects in cash generative sectors such as housebuilding, tobacco, insurance and telecoms.

One of the highest forward yields is from Persimmon (LSE:PSN) at 8.3%, having told the City that it intends to continue with its pre-Covid profile of capital return payments in 2022. This will mean the regular annual distribution of 125p a share in early July, with any surplus capital in relation to the 2021 financial year due to be paid in March or April 2022.

While dividends in the sector remain attractive, valuations are close to cycle lows thanks to the headwinds of rising interest rates, build-cost pressures and government policies.

The forecast yield at Imperial Brands (LSE:IMB) is also above 8%, with the tobacco giant due to pay its latest quarterly dividend to shareholders on its register on New Year's Eve. The Bristol-based firm rebased the dividend in May 2020 in order to accelerate debt reduction, but the payout is growing again as part of the company's progressive dividend policy.

British American Tobacco (LSE:BATS) has a forecast yield of 7.9%, while in the insurance sector Admiral (LSE:ADM) and Legal & General (LSE:LGEN) are on 9.4% and 6.2% respectively. Other blue-chip stocks of note include Vodafone at 6.8% and BP (LSE:BP.) at 4.8% as the latter believes it has the capacity for an annual increase in the dividend of around 4% through to 2025.

As always when assessing yields, income-seeking investors need to tread carefully and remember that particularly big numbers can turn out to be dividend traps.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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10 best FTSE 100 dividend yields