3 FTSE 100 shares with 5% forecast dividend yields for 2021

Robert Stephens, CFA, discusses FTSE 100 income opportunities while savings rates are at rock bottom.

This year has been yet another tough 12 months for savers. The dour performance of the economy means that the Bank of England has dropped interest rates to their lowest ever levels. The bad news is that this means opportunities to earn a decent income on your capital from savings have all but dried up.

The good news is that some FTSE 100 shares are forecast to deliver 5%+ dividend yields in 2021. Among them are Aviva (LON:AV.), Vodafone (LON:VOD) and SSE (LON:SSE). Here’s why I think they offer sound income prospects as part of a diverse portfolio of shares.

Vodafone’s resilient dividend prospects

Vodafone is forecast to yield just over 6% next year. Its recent performance has been fairly robust. A 2.3% revenue decline in the first half of the year was within its expectations, while it reaffirmed cash flow guidance for 2021. This indicates that it is on track to make dividend payments as expected over the medium term.

Longer term, the company is focusing in areas such as rolling out 5G in an efficient manner through utilising network sharing partnerships. It is also investing in digitisation to simplify its operations, while seeking to capture a growing share of the fixed broadband market. This latter opportunity may be eased by its mobile presence, with cross-selling opportunities on offer.

SSE’s dividend growth plans

SSE is forecast to yield just under 6% next year. I like the stock from an income perspective for two main reasons. 

First, its shift towards renewable assets and away from domestic energy supply could help it to become more relevant in the green recovery from Covid-19. Second, it plans to raise dividends at the same pace as inflation over the next few years. This may not seem appealing at the moment while inflation is just 0.7%. However, the UK’s forecast economic growth rate of 6% in 2021 and the Bank of England’s monetary policy stance may force inflation higher.

SSE’s quarterly performance continues to be weather-dependent. It may provide less resilience than other utility stocks. However, its ambitious capex plans could add value for shareholders over the long run.

Aviva’s new era

In my view, Aviva is at the start of a new era. Under new management, it is making asset disposals as it refocuses on key markets where it has an obvious competitive advantage. This will inevitably mean some disjointed performance in the short run, but may produce a more streamlined business in the long term. 

The insurance specialist is expected to yield 7.5% next year. Under a revised dividend policy, its shareholder payments could increase at a slower pace over the next few years as Aviva replenishes capital and strengthens its finances. Over the long term, I think its new strategy will aid financial performance and may have a positive effect on dividends.