2022 dividend forecasts: Lloyds, BP, Tesco

2021 has been a much better year for income investors than 2020. But payouts at many top FTSE 100 companies remain below 2019 levels. Fortunately, dividend forecasts suggest that payouts will likely continue rising in 2022.

To find out more, I’ve been taking a look at the latest City forecasts for Lloyds Banking Group (LSE: LLOY), Tesco (LSE: TSCO), and BP (LSE: BP), keeping in mind that forecasts can change based on future developments and are not something to rely on.

Lloyds: better than expected?

Last week’s third-quarter results from Lloyds were better than expected. The bank’s profits were boosted by growth in mortgage lending and the release of cash previously set aside for pandemic-related bad debts.

As a result of this strong performance, the bank’s regulatory surplus capital ratio rose to 17.2%. That’s well above the bank’s target of 12.5%. This suggests to me that CEO Charlie Nunn and the board should be able to increase dividend payouts in 2022.

City forecasts reflect this view. Lloyds’ dividend payout is currently expected to rise by 15% to 2.55p per share next year. That would give a 5.2% yield, well above the 3.4% FTSE 100 average.  

However, analysts expect the bank’s earnings to fall by 20% to 5.9p per share in 2022. Although I don’t think this would endanger the dividend, I do think it’s likely to slow its growth. It could be a few more years before Lloyds’ dividend returns to its pre-pandemic level of 3.2p per share.

Tesco: steady progress

The UK’s largest supermarket has had a strong start to the current year.

Results for the six months to 28 August showed sales up by 3% to £27,331m, excluding fuel. Pre-tax profit for the period doubled to £830m, reflecting a fall in Covid-related costs and lower debt charges. Strong cash flow helped to cut net debt from £12bn to £10.2bn.

All of this is good news for shareholders. Lower debt should mean that more cash is available for shareholder returns.

CEO Ken Murphy is keen to deliver on this promise. He recently reiterated the board’s intention to pay out 50% of earnings as dividends each year.

Brokers’ consensus forecasts suggest this promise will translate to a payout of 10p per share in 2021–22, rising to 10.5p in 2022–23. That gives the stock a forecast yield of 3.7%, rising to 3.9% next year.

I reckon Tesco’s dividend looks safe, but I expect earnings and dividend growth to be slower from 2022 onwards.

BP: high prices, safe dividend

BP’s dividend looks safe to me after this week’s third-quarter results. High oil and gas prices are making it easier for CEO Bernard Looney to cut debt, invest in new projects, and fund share buybacks.

However, while BP is certainly benefiting from oil priced at over $80 per barrel, it’s good to see that the company doesn’t need these prices.

Looney says the company’s planning is based on oil at $60 per barrel. With prices at this level, the business should be able to support 4% annual dividend growth through to 2025.

At current levels, BP offers a dividend yield of 4.5%. If the company delivers on its guidance, anyone buying BP shares today can look forward to a 4.5% income, rising by 4% each year until at least 2025.

The risk is that the longer-term outlook for oil demand is unclear. To address this, BP must reduce its dependency on oil. There’s no way yet to know how successful this will be.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.