An update to @stephkendall’s post - Snapshot of High Dividend Yields on the Freetrade App - from Morningstar:
How We Select Companies
Morningstar.co.uk has filtered 20 income shares using a range of criteria. Each income stock must have an “economic moat”, which means that the company has a sustainable competitive advantage. Stocks with a “narrow” or “wide” moat make the cut. We then add in the star-rating, which indicates whether the company’s shares are trading below or above their fair value.
We also look at the historic yield (trailing 12 months) and compare that with the forward yield.
Another filter is then added to screen for those companies whose five-year dividend yield is less than 15%. This adds an element of consistency – for example, a one-off special dividend would skew the yield in one year to an artificially high level – and remove companies whose share price plunge has pushed the yield up significantly.
Source - Top FTSE 100 Dividend Paying Stocks | Morningstar
This is not an investment recommendation
This is interesting - UK corporate profits under pressure, may affect dividends:
UK Dividends soared to an all-time high in the second quarter of the year as companies paid out ÂŁ37.8 billion. But special dividends and a weaker pound are masking underlying weakness in the market, warns the Link Group Dividend Monitor.
On the surface, dividends climbed 14.5% to an all-time high in the second quarter of 2019, beating the previous record, set two years ago, by some £4.4 billion. But, in its latest quarterly report on the state of the UK dividend market Link says the quality of this growth was poor and a number of exceptionally large special dividends from the likes of Rio Tinto (RIO), Micro Focus International (MCRO) and RBS (RBS) have skewed the picture. Special dividends totalled £5.4 billion in the quarter – 147% higher than a year ago.
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He warns that corporate profits are under pressure, which will limit the scope for companies to increase their pay outs over the coming months. Overall, Link expects pay outs to climb by just 2.9% this year, about two-thirds of which is likely to come from gains made through exchange rates.
Earnings growth in the UK is among the lowest globally and economic growth has also been disappointing. Link says: “Our underlying forecast [for dividends] has dropped by £500 million to £98.7 billion. This means that the true picture for dividends this year is significantly weaker than a first glance might suggest.”
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The top five dividend payers for the quarter were Rio Tinto, HSBC, Royal Dutch Shell (RDSA), BP (BP) and Micro Focus International, accounting for 29% of the total pay outs in the period. Of these, BP is the only stock to feature in the Morningstar UK Sustainability Dividend Yield Focus Index, which focuses on the 25 FTSE firms with the most sustainable pay outs. BP, which has a four-star Morningstar rating, has a high uncertainty rating and a narrow economic moat.
Source - Weak Pound Pushes UK Dividends to Record High | Morningstar
Also this interview is quite interesting - about the implied risk premium in dividend yields in relation to the UK govt bond yields:
Mould : … Because if you think about it, what are you getting in the bank from the best possible cash ISA right now? Couple of percent? If you lock it, and you’re locking up your money for quite a long time to get that, right? The UK 10-year gilt yield, the bond yield on 10-year government loans is known as the risk-free rate, okay? Because the government is always – whenever you’ve loaned money to the UK Government, it’s paid it back since 1672. So, our record isn’t bad. But that is currently offering you 0.65%, okay? So, if something’s offering you 12% and the risk-free rate is 0.65%, how much risk are you taking to get the 12%, A, the income could be too high, but B, just think of the share price, the capital risk, and that’s what Royal Mail, Vodafone, M&S and Centrica, have told you, because their share prices all collapsed. So, the risk that you’re taking will be very, very – I’m not saying don’t do it. But I’m saying be very aware of the risk that you will be taking.
This is also not an investment recommendation