Top FTSE 350 dividend yields for ISA deadline week

There are just days to go before the April 5 deadline for taking up this year's tax-free allocation in an Individual Savings Account (ISA). For investors seeking last minute opportunities, one option is to explore some of the market's largest, high-yield shares. Some traditional stalwarts in this category have come under pressure in recent years, which has changed the dividend landscape - so it's worth taking a closer look.

Dividend-paying companies have long been a popular source of returns for investors prepared to take a long-term view. While stock prices tend to attract the most attention, a huge amount of industry evidence shows that dividend yield and growth are actually a bigger influence on long-term stock market returns. Crucially, this means reinvesting those dividends back into strong, high-yielding shares (and not spending them).

Looking beyond FTSE 100 for high yield

£87.6 billion was paid out by companies in 2015, according to Capita Asset Services, which tracks UK dividend payments. However, there is pressure on these payments. Some of the highest yielding shares in recent years have been found in sectors like supermarkets, oil & gas and mining. But a combination of price wars and tumbling commodity prices in these areas have caused havoc and forced a rethink about where the most resilient payouts can be found. Based on last year's figures, financial services and consumer-focused companies have seen the strongest levels of growth.

While the top 100 companies in the UK easily account for the lion's share of dividends, there has been notably strong growth among the mid-caps of the FTSE 250. Forecasters now predict that UK equities will yield 3.9% this year, which puts them ahead of all other asset classes.

With that in mind, Stockopedia set out to try and improve on that average 3.9% figure by looking at the forecast yields on FTSE 350 shares for the year ahead. Company size, of course, offers no certainty at all that a dividend is sustainable. So we included a couple of other safety nets.

The first is that dividend cover - the ratio of a company's net income over the dividend it pays out - must be above 1.2 times. The second is that each company needed a StockRank of at least 80 out of a possible 100. StockRanks score and rank every company based on the strength of their combined quality, value and momentum - from zero (poor) to 100 (excellent).

This snapshot of the results reveals a bias towards financial and consumer facing shares, as we expected. The minimum forecast yield is a useful 4.5% at National Grid. Housebuilders were a common feature of our screening experiments, with the likes of Galliford Try and Barratt Developments offering superior forward yields in excess of 6.0%.

Elsewhere, industrial stocks like Carillion, Mitie, Royal Mail and Electrocomponents all have forecast yields of over 4.7%.

Insurance group esure and inter-dealer broker Tullett Prebon were the highest scoring results from the financial sector, with yields of around 5.0%

Dividend strategies for ISA deadline

It's worth remembering that there are various ways of finding dividend stocks - some argue that dividend growth is more important that high yield. However, few would argue that investors with a long-term view should be looking for strong, stable businesses that are capable of withstanding bumps in the road to at least maintain their payouts.

Careful research is necessary, but when it comes to long term, tax-free investing through an ISA, hunting for attractive yields from some of the market's largest and strongest shares could be a good place to start.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

About Stockopedia

Interactive Investor's Stock Screening series is written by Ben Hobson ofStockopedia.com, the rules-based stockmarket investing website. You canclick here to read Richard Beddard's review of Stockopedia.com and learn more about the site.

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Ben Hobson is Investment Strategies Editor at Stockopedia.com. His background is in business analysis and journalism. Ben researches and writes regularly on investment strategy performance and screening ideas for Stockopedia.com. He is the author of several ebooks including "How to Make Money in Value Stocks" and "The Smart Money Playbook"