Can you rely on Britain’s biggest income stocks?

The FTSE 100’s first steps above the 9,000 mark this week serve to remind investors of one of the London stock market’s key attractions: the generous dividends its stocks pay. The blue-chip index’s yield of 3.4% compares with just 1.5% from Wall Street’s S&P 500 index. Please note these yields are not guaranteed.

An investor who is happy with that 3.4% yield could just buy a tracker fund, such as the iShares Core FTSE 100 UCITS ETF (exchange-traded fund) from Fidelity’s Select 50 list of recommended funds. But those in search of a higher yield have plenty of individual stocks to choose from, both from the FTSE 100 itself and from the lower reaches of the London market.

Plenty of traps await those who buy shares with high yields, however. Seasoned market watchers always warn that a yield appreciably higher than the market average tends to be a sign that the dividend is not sustainable, perhaps because profits are under pressure. They term stocks whose yields are in ‘too good to be true’ territory ‘value traps’.

To help avoid such perils we have constructed a simple stock screen that aims to identify sustainably high yields. Such a tool can be only a starting point, however, and investors would be well advised to carry out further research before they commit money. This article may help: How to avoid dividend cuts from the UK’s highest yielders.

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How we constructed the stock screen

We used the LSEG Datastream service from the London Stock Exchange to build a table of dividend information for stocks in the FTSE 350 index of London’s 350 most valuable listed companies. The table included the following figures: dividend yield, dividend cover by earnings, dividend cover by cash flow (see this article for an explanation of cash flow’s importance) and the average annual growth in the dividend over the past five years.

We eliminated all stocks for which any of these numbers were negative, zero or not available. In addition, if the dividend was not at least fully covered by both earnings and cash flow, we eliminated the stock.

We also removed from the table any investment trusts in the FTSE 350, which we think are better analysed separately. Finally, we imposed a yield threshold of 4.5%, so all stocks that yielded less than that figure were also removed from the table. Of the 350 stocks in the index, we were left with 28 after applying our filters.

• Read: FTSE 100 at 9,000 - six key questions answered

The stocks that made the cut

The shares that passed our tests are listed in the table below.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Direct shareholdings should generally form part of a well diversified portfolio of other investments. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy funds. Equally, if a fund you own is not on the Select 50, we're not recommending you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.