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The FTSE 100‘s a bit wobbly as people fear the upcoming budget. But it’s nonetheless holding up over 8,000 factors, and I believe the longer term for dividends would possibly by no means have appeared higher.
However wait, aren’t FTSE 100 dividend forecasts being scaled again within the face of our gradual economic system? Properly, sure. The all-time report dividend payout of £85.2bn got here in 2018. And as we’ve recovered from the Covid crash, it’s appeared set to be crushed a few occasions.
However every year falls brief. And with solely a 1% progress in dividend money forecast for 2024, it seems to be like we’ll nonetheless be a way from it this 12 months. A 1% rise isn’t even near preserving dividends up with inflation.
Beating the previous
Nonetheless, a few of the shortfall in dividends is because of one thing that’s truly good. Judging their inventory costs to be too low, quite a lot of corporations have been returning money by the use of share buybacks as an alternative.
That received’t put money straight into shareholders’ pockets. However with fewer shares in circulation, what it ought to do is enhance future earnings and dividends per share.
And, in line with AJ Bell‘s most up-to-date Dividend Dashboard, we may very well be on for a 7% leap in dividend funds in 2025. That might take us near the 2018 report. Can 2026 then get us into new report territory? I believe there needs to be an excellent probability.
I do know we’ve been upset by complete dividend forecasts being scaled again. However I need to check out a dividend inventory I’m contemplating for my investments.
Dividend favorite
I’m speaking about British American Tobacco (LSE: BATS), with a forecast yield of 8.3%. And that’s even after the share value has seen a little bit of a resurgence this 12 months.
In addition to the fats yield, I like a couple of different issues in regards to the British American dividend. One is that cowl by earnings seems to be seems to be robust sufficient. We’re about 1.3 times-1.35 occasions over the subsequent three years.
In some industries with extra uncertainties, that may very well be a bit skinny. However on this case it’s a enterprise with a reasonably clear view of possible revenues and prices. And that’s one other factor I like.
And I notably like the truth that dealer forecasts present earnings per share (EPS) and dividends persevering with to rise within the subsequent three years. In the event that they’re proper, EPS would improve by 14% between 2024 and 2026, with dividend money up 9%.
The massive threat for British American Tobacco, after all, is the tobacco half. Will the world some day shun it and consign it to historical past? Some assume it’s going to, some assume British American can hold going with new merchandise.
Buybacks too
Oh, and on prime of its dividend payouts, British American can also be shopping for again its personal shares. And buybacks, or not less than the top of them, are a key factor that I believe might assist push us into an awesome decade for dividend buyers.
When share costs have recovered sufficient for buybacks to make much less sense, it might imply additional cash for dividends.