The FTSE 100 (^FTSE) has had a relatively good year, with the total index generating an 11.4% total return across 2024, according to data from AJ Bell (AJB.L).
In fact it was the index's best year since 2021, with 18 constituent stocks beating the S&P 500 (^GSPC) in 2024.
Natwest (NWG.L) and Rolls-Royce (RR.L) were among the top performers in terms of return from the stock price, with an 88.6% and 92% bump respectively. Meanwhile on the other end of the index, JD Sports (JD.L) lagged, with losses of around 36% for the year-to-date.
As 2024 rounds out, analysts at AJ Bell say they expect £78.5bn in dividends from the FTSE 100 (^FTSE) in 2024 — almost no dividend growth relative to 2023, before a 6.5% increase in 2025 to £83.6bn.
When it comes to using dividend payments as income, a company’s dividend yield is the measure most investors look at. That’s the annual dividend payment as a percentage of its current share price.
"So, if a company’s share price is 100p and it paid dividends of 6p over the last year, its dividend yield is 6%. But biggest isn’t always best. Because yields are usually calculated using last year’s dividend, it means they aren’t a reliable guide to the income you’ll get in the future," explains Aarin Chiekrie, equity analyst, Hargreaves Lansdown (HL.L). "And where they are based on forward expectations there’s no guarantee they’ll be met."
Usually, investors can expect dividend returns from the more mature and stable listed businesses, which prefer returning the cash rather than reinvesting it in the business.
"The FTSE 100’s highest yielders are dominated by property companies, financial services providers, natural resources businesses, utilities and consumer staples," adds Chiekrie.
Investors need to look at the bigger picture, consider how sustainable the dividend is, and if there’s room for it to grow in the future. Here’s three companies that fit the bill:
With Natwest's latest results outstripping expectations, it's a good bet as a dividend stock in 2024.
"As a traditional lender, default rates are an important figure to keep an eye on. So far, they’ve remained low and stable which is good news for NatWest. Income guidance has been pushed higher in recent quarters, as the number of rate cuts expected in the near term has fallen," said Chiekrie.
As rate cut expectations wane, expectations for underlying performance increase, there's "room for some upside."
Natwest boasts a 5.1% dividend yield, potential for share buybacks and a strong balance sheet.
"The valuation remains attractive given NatWest looks to be one of best-placed UK banks to benefit from several sector tailwinds," said Chiekrie.
Analysts say Legal & General is one of the top dividend stocks of the FTSE 100 this year due to a solid first-half. Operating profits for its first six months came in at £849m, slightly ahead of market expectations.
The asset manager also has its eye on expanding its footprint beyond the UK to places like the US, Canada and the Netherlands, meaning potential for future growth.
"Its balance sheet is in very good shape," said Chiekrie. "With capital generation exceeding dividend payouts, the 9.3% dividend yield looks well supported."
Meanwhile, the company has given management the confidence to crack on with the current £200m slice of share buybacks.
Redevelopment of Broadgate in the City of London. Broadgate is a 32-acre office and retail estate in the Bishopsgate Without area, owned by British Land and Singaporean sovereign wealth fund GIC. ·Mike Kemp via Getty Images
British Land investors enjoyed a 6.4% dividend this year, due to a strong property portfolio with high levels of occupancy.
A growing spotlight on specialist real estate such as science parks and e-commerce distribution hubs should help mitigate the impact of peaks and troughs in demand for leased business premises, as the company looks to the future.
The company is also banking on continued demand for out-of-town shopping, investing over £700m in retail parks in the first half of the year.
"The balance sheet is strong enough to fund future growth and dividends," said Chiekrie.
"Falling interest rates and hence cheaper financing could also improve returns on future developments. However, such a bold investment strategy does come with execution risk, which is reflected in a valuation some way below the company’s net asset value."
Savings and retirement investment business Phoenix Holdings would have netted a 10.6% dividend yield for investors in 2024. The company's share price, meanwhile, is up a modest 5.1% over 12 months.
Analysts have said Phoenix's outlook in 2025 partly depends on interest rates. Its shares have dipped 9% in the last three months as investors now expect rates to stay higher for longer.
Investment manager M&G has paid out a 10.2% dividend to investors across 2024, leading market watchers to label it as a top passive income stock.
Shaky financial ground for other institutions, such as Silicon Valley Bank, have previously shaken this stock's share price, but it has all but recouped those losses in 2024.
Other stocks with high dividend yields in 2024, according to data
AJ Bell compiled a list of the FTSE companies who have upped their dividend payments year-on-year.
“In 2024, Diploma (DPLM.L) and SEGRO (SGRO.L) have joined the list of FTSE 100 firms who have increased their annual dividend payment every year for a least a decade," said Mould. "This group has, on average, premium capital returns and total returns relative to the FTSE 100. Only five of the 19 have underperformed the FTSE 100 over the past decade in capital terms and just five have also done so in terms of total returns (including dividend reinvestment)."
Apart from Diploma and Segro stocks to watch for growing payouts are:
There are lots of moving parts to consider for dividends in the year ahead, not least macroeconomic uncertainties and interest rate decisions by central banks.
“The biggest challenge for UK equities could be if 2025 sees any divergence from the expected macroeconomic path of cooling inflation, modest economic growth and falling interest rates (although the same danger faces the US and European stock markets, which come on higher valuation multiples, according to consensus analysts’ forecasts)," said Russ Mould, investment director at AJ Bell.
"The discussion does seem to be gently switching to whether UK interest rates could be higher for longer, and the two-year gilt yield offers a good litmus test here. At the time of writing, it stands at 4.25%, a figure which suggests either very modest rate cuts in 2025, or rate increases in 2026, or both."
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