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I FTSE 100'we were shocked as people were afraid of the upcoming budget. But it's still holding more than 8,000 points, and I think the future of earnings may never look better.
But wait, aren't the FTSE 100 stock forecasts being reversed in the face of our slowing economy? Yes Yes. An all-time record payout of £85.2bn came in 2018. And now that we've recovered from the Covid crash, it looks like it's going to be hit a few times.
But each year it falls. And with only 1% growth in dividend income forecast for 2024, it looks like we'll still be out of it this year. A 1% increase doesn't even come close to keeping dividends up with inflation.
Beating the past
However, some of the lack of benefits is due to something really good. Considering their stock prices too low, many firms have been returning cash in the form of stock buybacks instead.
That won't put cash directly into shareholders' pockets. But with fewer dividends distributed, all it has to do is increase future earnings and dividends per share.
And, by the way AJ Bellvery recent Dividend Dashboardwe may continue to exceed 7% in dividend payments in 2025. That could bring us closer to the 2018 record. Could 2026 take us to a new record? I think there should be a very good chance.
I know that we are disappointed with the overall forecasts of reduced dividends. But I want to look at the dividend stock that I am considering for my investment.
The dividend is a favorite
What am I talking about? British American cigars (LSE: BATS), with a forecast yield of 8.3%. And that's even after the share price has seen a bit of a rebound this year.
Along with the oil yield, I like a few other things about the British American dividend. One is that the cover by earnings looks strong enough. We are looking at about 1.3 times 1.35 times in the next three years.
In other industries with more uncertainty, that may be less. But this is a business with a clear view of income and expenses. And that's another thing I like.
And I really like the fact that consumer forecasts show earnings per share (EPS) and dividends continuing to rise over the next three years. If they are right, EPS will increase by 14% between 2024 and 2026, and dividend cash up by 9%.
British American Tobacco's biggest risk is, of course, the tobacco segment. Will the world one day avoid it and consign it to history? Some think it will happen, others think that British American can continue with new products.
Shopping again
Oh, and on top of its dividend payments, British American is also buying back its own shares. And buying, or at least the end of it, is an important thing that I think can help us enter a big decade for diversification investors.
If share prices have recovered enough to make a purchase make little sense, it could mean more cash for dividends.
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