My 3 favourite FTSE dividend stocks give me a mind-blowing 9.82% yield!
I was running through a list of FTSE 100 dividend stocks and was pleasantly surprised to see three of my favourite portfolio holdings were right at the top of the yield chart.
Two of them pay income of more than 9% a year, one pays more than 10%. Across the three, my average yield is a stunning 9.82%.
That’s almost double the interest I’d get from a best-buy variable rate savings account, and stocks offer me two further advantages over cash.
I love ultra-high FTSE 100 income shares
First, I have the prospect of capital growth on top if their share prices rise, turbo-charging my overall return. Second, when interest rates start falling, which may finally happen in 2025, savings rates will fall but with luck, my dividends should keep rolling in at today’s levels.
The catch is that neither advantage is guaranteed. Share prices can rise as well as fall, so my capital is at risk. And if my stock picks don’t generate enough cash to fund their dividends, they could be cut too. Once yields head towards double digits, they become vulnerable.
My three ultra-high-yielders are Legal & General Group, which has a trailing yield of 9.29%, M&G, which yields 9.76% and Phoenix Group Holdings, which top them both by yielding 10.42%.
One thing instantly becomes clear. All three are in the financials sector and manage huge pots of assets on behalf of investors and policyholders. While M&G is a wealth manager, having been hived off from FTSE 100 insurer Prudential in October 2019, L&G and Phoenix are primarily insurers.
Strip out the ‘Magnificent Seven’ US tech mega-caps, and it’s been a bumpy few years for stock markets. The pandemic, energy shock, cost-of-living crisis and Chinese slump have smashed confidence. All three of these stocks have struggled, as my table shows.
| Legal & General | M&G | Phoenix Group | |
| 1-year stock return | -2.64% | -1.18% | 6.01% |
| 5-year stock return | -20.26% | -13.07% | -28.67% |
Since I bought them roughly 18 months ago, I’ve avoided the worst of the share price dips. I’m roughly around 10% ahead, once I add in my dividends.
I’m holding all three for the long term
Investment manager M&G conforms to the pattern. Pre-tax operating profits fell 3.8% in the year to 30 June to £375m, as net outflows hit £1.5bn amid disappointing markets. Operating capital generation slipped from £505m to £486m.
Worryingly, dividend cover has slumped to just 0.6. Ideally, I want to see dividend covered twice by earnings. So there’s a risk the board could cut shareholder payouts. Yet it wants to avoid that if it possibly can, and luckily maintains a healthy balance sheet and can raid its capital reserves to plug any shortfall.
Its Solvency II capital ratio was 210% as of June, more than double the regulatory requirement of 100%. The board has also upgraded its three-year cash generation target from £2.5bn to £2.7bn.
CEO Andrea Rossi has upped its cost-savings targets and says M&G is showing its resilience. I’m assuming that extends to the dividend.
At some point, possibly even next year, interest rates should fall and if they do, markets should pick up. I’ll continue to hold all three high-yield heroes with a minimum 10-year view and reinvest every dividend I get to buy more shares.
The post My 3 favourite FTSE dividend stocks give me a mind-blowing 9.82% yield! appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions,
he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy
— and discover:
- Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
- How to potentially get paid by the weather
- Electric Vehicles’ secret
backdoor
opportunity - One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
More reading
- Here’s how (and why) I’d start buying shares with £25 a week
- Here’s how I’d use a £20K Stocks and Shares ISA to try and build wealth
- FTSE 100 shares yield under 4%. Here’s why that matters!
- By investing £80 a week, I can target a £3k+ second income like this
- Here’s a simple 4-stock dividend income portfolio with a 7.8% yield
Harvey Jones has positions in Legal & General Group Plc, M&g Plc, and Phoenix Group Plc. The Motley Fool UK has recommended M&g Plc and Prudential Plc. 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.
