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The FTSE 100‘s a bit wobbly as individuals worry the upcoming price range. Nevertheless it’s nonetheless holding up over 8,000 factors, and I believe the long run for dividends would possibly by no means have regarded higher.
However wait, aren’t FTSE 100 dividend forecasts being scaled again within the face of our gradual financial system? Effectively, sure. The all-time file dividend payout of £85.2bn got here in 2018. And as we’ve recovered from the Covid crash, it’s regarded set to be overwhelmed a few occasions.
However every year falls brief. And with solely a 1% progress in dividend money forecast for 2024, it appears to be like like we’ll nonetheless be a way from it this yr. A 1% rise isn’t even near protecting dividends up with inflation.
Beating the previous
Nonetheless, a number of the shortfall in dividends is because of one thing that’s really good. Judging their inventory costs to be too low, quite a lot of corporations have been returning money by means 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 increase future earnings and dividends per share.
And, in line with AJ Bell‘s most up-to-date Dividend Dashboard, we might be on for a 7% bounce in dividend funds in 2025. That might take us near the 2018 file. Can 2026 then get us into new file territory? I believe there must be an excellent probability.
I do know we’ve been disenchanted by complete dividend forecasts being scaled again. However I would like to try 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 worth has seen a little bit of a resurgence this yr.
In addition to the fats yield, I like just a few different issues concerning the British American dividend. One is that cowl by earnings appears to be like appears to be like sturdy sufficient. We’re about 1.3 times-1.35 occasions over the following three years.
In some industries with extra uncertainties, that might be a bit skinny. However on this case it’s a enterprise with a reasonably clear view of probably 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 enhance by 14% between 2024 and 2026, with dividend money up 9%.
The large 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 would, some assume British American can maintain going with new merchandise.
Buybacks too
Oh, and on high of its dividend payouts, British American can be shopping for again its personal shares. And buybacks, or at the very least the top of them, are a key factor that I believe may assist push us into an ideal decade for dividend traders.
When share costs have recovered sufficient for buybacks to make much less sense, it may imply more money for dividends.
