Stock market

2 FTSE 100 high dividend shares to consider in May

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gave FTSE 100Dividend shares have been a great place to find stocks in recent decades. But times have gotten tougher recently as earnings and balance sheets have come under strain.

The broker AJ Bell notes that “The current crop of FTSE 100 members have had 138 dividend cuts in the past decade.“More than half (74) came out of the blue when the Covid-19 crisis broke. Another nine were developed in 2023.

Check list

Overall, UK blue chips are a good bet for investors looking for profitable income. AJ Bell says Footsie’s average dividend yield for the year stands at an inflation-adjusted 3.8%. And this number increases to 4.1 percent by 2025.

But a patchy record since the pandemic means investors need to be more cautious than usual when investing for profit.

I look for companies that have:

  • Key market positions and diversified revenue streams
  • Defensive actions that provide income stability.
  • Sustainable dividend payout ratio of 30-50%
  • Strong dividend cover of 2 times or above
  • Strong balance sheets (with solid cash flow and low debt)
  • Long track record of dividend growth

Not all high dividend stocks meet all of these criteria. But by trying to tick off as much as possible, I can significantly increase my chances of generating healthy passive income.

Top Stock #1

to this end, HSBC Holdings (LSE:HSBA) is on my list of dividend stocks to buy in May. However, its recent dividend record is less than perfect. The banking giant cut the dividend in 2019 and again in 2024.

This is despite the fact that profit generation is highly dependent on strong economic conditions. Especially important for this stock is the continued turmoil in the Chinese economy.

HSBC has many attractive features as a dividend stock. Its dividend yield to 2024 is 7.6%, double the FTSE 100 average.

This year’s forecasted profit is also 2.3 times higher than expected revenue. The company also has a strong balance sheet, with a CET1 capital ratio of 14.8 percent as of December boosted recently by the sale of assets in Canada.

Finally, HSBC’s dividend payout ratio stands at a sustainable 43%.

Top Stock #2

I am also considering buying. WPP (LSE:WPP) shares this month. The advertising company has an excellent 4.8% profit yield for the year.

Here shareholder payouts are highly correlated with the strength of the global economy. So WPP’s annual dividend is expected to be frozen at 39.4p per share for the second consecutive year in 2024 as tough conditions persist.

But as an income investor there’s still a lot to like here. The ad agency still carries market-beating production.

Meanwhile, the dividend cover sits at 2.3 times. Net debt to EBITDA is a manageable 1.8 times. And the payout ratio comes close to 40%. All this reinforces the current dividend forecast.

I believe WPP will be in a position to grow profits again before long. I believe that its increased investment in digital advertising and ongoing global expansion should continue to increase profits (and thus profits).

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