Here’s why we could be in for a golden decade for FTSE 100 dividend stocks

This FTSE100‘is a bit shaky as people are worried about the upcoming budget. But it’s still holding at over 8,000 points and I think the future of dividends has never looked brighter.

But wait, aren’t the FTSE 100 dividend forecasts being cut back in the face of our sluggish economy? Well, yes. The all-time record dividend payout of £85.2bn was in 2018. And as we’ve recovered from the Covid crash, it looked set to be beaten several times over.

But every year is worse. And with the cash dividend growth forecast for 2024 at just 1%, it looks like we’re still a long way off that this year. A 1% increase isn’t even close to keeping the dividend in line with inflation.

Overcoming the past

Still, part of the dividend shortfall is due to something that is actually good. Judging their stock prices as being too low, many companies have returned cash by buying back stock.

This won’t put cash straight into shareholders’ pockets. But with fewer shares outstanding, what it should do is boost future earnings and dividends per share.

And according to AJ DzwonThe Latest Dividend PanelWe can expect a 7% increase in dividend payouts in 2025. That could bring us close to the 2018 record. Could 2026 take us into new record territory? I think there’s a very good chance of that.

I know we were disappointed with the overall dividend forecasts, which were trimmed. But I want to take a look at the dividend stocks I’m considering for my investments.

Dividend favorite

I’m talking about British American Tobacco (LSE:BATS) with a projected return of 8.3%. And that’s even after the share price has risen slightly this year.

Apart from the high yield, there are a few other things I like about the UK-US dividend. One is that the coverage by earnings looks reasonably strong. We’re looking at around 1.3-1.35 times over the next three years.

In some industries with more uncertainty, that can be a little thin. But in this case, it’s a business with a pretty clear view of likely revenues and costs. And that’s another thing I like.

I especially like the fact that broker forecasts show that earnings per share (EPS) and dividends will continue to grow over the next three years. If they come true, EPS will grow by 14% between 2024 and 2026, and cash from dividends will grow by 9%.

Of course, the biggest risk for British American Tobacco is tobacco. Will the world one day reject it and consign it to history? Some think so, others think British American can continue with new products.

Buybacks too

Oh, and in addition to paying dividends, British American is also buying back its own stock. And that stock buyback, or at least the end of it, is a key thing that I think could help usher in a great decade for dividend investors.

When stock prices rise enough that share buybacks no longer make sense, that could mean more cash for dividends.