There’s no doubt that one of the defining features of the UK stock market today when compared to the US is the high dividend yield available from many UK stocks.
In a recent piece, I looked at the potential appeal and recent outperformance of stocks selected from the classic Dividend Dogs high yield screen. Having underperformed during the zero interest rate era, this screen has handily outperformed since rates started to rise.
As a follow-up to this, I decided to create a new simple FTSE 350 income screen to use as a source of ideas for big-cap income stocks.
This piece will introduce the screen and highlight some of the higher yield opportunities I can see today among larger UK stocks.
In a second piece, I’ll then look at an alternative opportunity set in dividend growth stocks.
Finally, I’m planning to take a look at how to manage the balance between dividend growth and high yield in order to try and maximise returns.
FTSE 350 Income screen
I’ve named this screen the FTSE 350 Income screen, but have also specified a minimum market cap of £1bn. Although this excludes some FTSE 250 stocks, I think it’s useful for the purposes of this screen to ensure I focus on large, liquid companies with good analyst coverage.
The screen itself is extremely simple, by design. I’ve co-opted the StockRanks to do the heavy lifting alongside a few simple measures to narrow down the market to a plausible choice of high yielders.
Here’s a snapshot of the rules I’ve used:
(You can see the FTSE 350 Income Screen here)
Dividend yield: I’ve opted for a yield of at least 4% to ensure it’s above the FTSE 100 average (currently about 3.6%) and also high enough to be competitive with the interest rates available on savings.
Although dividends are never guaranteed and share prices can fall, I think that a diversified portfolio of FTSE 350 income stocks has the potential to provide similar income to savings plus medium-term capital gains.
Dividend cover compares the shareholder payout with earnings and is a useful measure of sustainability. Cover of 1.2 is relatively low for some businesses, but I’ve set the threshold at this level to include high yield…
