The FTSE 100 (^FTSE) index has performed well in 2024, with an 11.4% total return for the year, marking its best performance since 2021. However, while stock price growth has been robust, investors are also looking to the dividend yield as a key indicator of future income potential. The FTSE 100 is set to distribute approximately £78.5bn in dividends for 2024, with a 6.5% increase to £83.6bn expected in 2025.
Dividend yields provide investors with income relative to a company’s share price. However, yields can be deceptive, as they are often based on last year’s dividends and may not always reflect future payouts. It’s important to assess the sustainability of dividends and the growth prospects of the companies paying them.
Here’s a look at three FTSE 100 companies with strong dividend yields and solid fundamentals, making them good candidates for investors looking for income in 2024.
Best Paying FTSE 100 Stocks of 2024
1. NatWest (NWG.L)
Dividend Yield: 5.1%
NatWest has been one of the top-performing stocks in the FTSE 100 in 2024, driven by strong financial results. The bank has seen better-than-expected results, and its performance remains stable, with low and stable default rates. The outlook for 2024 is promising, especially as expectations for interest rate cuts have diminished, leaving room for the bank to continue benefiting from higher interest rates.
Key Investment Considerations:
- Solid Dividend Yield: With a 5.1% dividend yield, NatWest provides a reliable income stream.
- Strong Balance Sheet: The bank has maintained a robust financial position, which supports its ability to sustain dividend payouts.
- Upside Potential: As expectations for rate cuts fall, NatWest is positioned to capitalize on favorable sector conditions, including higher loan margins.
- Share Buybacks: The bank has the potential for share buybacks, which could further enhance shareholder returns.
Investors are optimistic about NatWest due to its ability to thrive amid favorable economic conditions and its strong position in the UK banking sector.
2. Rolls-Royce (RR.L)
Dividend Yield: 4.3%
Rolls-Royce is another strong performer in the FTSE 100 in 2024, with an impressive 92% gain in share price for the year. Despite recent volatility in the stock price, Rolls-Royce’s dividend yield remains attractive for income-seeking investors. The company has been focused on restructuring and improving its balance sheet, and while it has historically been less of a dividend-focused stock, its improving financial position makes it a more compelling option.
Key Investment Considerations:
- Restructuring Gains: The company’s turnaround efforts, including streamlining operations and reducing debt, should contribute to its ability to pay dividends.
- Stable Growth in Aerospace: As the aerospace industry recovers from pandemic-related disruptions, Rolls-Royce stands to benefit from increased demand for aircraft engines and services.
- Potential for Dividend Growth: While Rolls-Royce has not been known for high dividend payouts historically, its improving financial outlook may lead to more sustainable and growing dividends in the future.
3. Legal & General (LGEN.L)
Dividend Yield: 6.4%
Legal & General, a leading UK-based financial services company, offers a dividend yield of 6.4%, making it one of the highest dividend payers in the FTSE 100. The company’s stable business model, focused on insurance, pension management, and asset management, provides consistent revenue streams, allowing for solid dividend payouts.
Key Investment Considerations:
- Consistent Payouts: Legal & General has a strong track record of paying reliable dividends, making it an attractive option for income-focused investors.
- Diversified Revenue Streams: With operations spanning multiple areas of financial services, the company is less reliant on any one market segment.
- Growth Potential: The company’s focus on long-term trends, such as pension and asset management, positions it well for future growth.
- Capital Efficiency: Legal & General’s capital allocation strategy has been effective in delivering value to shareholders, including returning excess capital via dividends.
4. British American Tobacco (BATS.L)
Dividend Yield: 6.2%
British American Tobacco remains one of the top dividend payers in the FTSE 100, with a dividend yield of 6.2%. As a leader in the tobacco industry, the company has a long history of generating strong cash flows, which it returns to shareholders via consistent dividends.
Key Investment Considerations:
- High Cash Flow: British American Tobacco generates substantial cash flows from its global operations, supporting its high dividend yield.
- Transition to Reduced-Risk Products: The company’s investment in new product categories, such as e-cigarettes and smokeless tobacco, could provide future growth avenues.
- Dividend Sustainability: Despite regulatory challenges in the tobacco sector, British American Tobacco’s financial strength and commitment to shareholder returns make it a reliable dividend stock.
Conclusion:
When looking for high-paying FTSE 100 stocks in 2024, investors should not only focus on the dividend yield but also consider the sustainability and growth potential of these dividends. Companies like NatWest, Rolls-Royce, Legal & General, and British American Tobacco offer strong yields backed by solid fundamentals, making them attractive options for income-focused investors.
Disclaimer: Dividend yields are subject to change, and past performance is not indicative of future results. Investors should conduct thorough research or consult a financial advisor before making investment decisions.
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