These high-yielding FTSE 100 dividend shares are soaring! Time to buy more?
When analysing dividend shares, I focus on more than just the yield. A healthy payout ratio, consistent dividend growth and strong fundamentals are all part of the equation. I want to see companies that can not only maintain their dividends but also grow them steadily over time without compromising their financial position.
While hunting for income stocks to top up in June, I noticed two of my long-term holdings – Aviva (LSE:AV.) and Phoenix Group (LSE:PHNX) – have climbed nearly 30% this year. That kind of performance often reflects improving investor confidence and, in this case, I think it’s partly down to renewed optimism in the UK insurance sector.
Falling inflation, stabilising interest rates and improved finances have helped the sector look more attractive in 2024. But before I consider buying more, I decided to assess whether the recent rally’s sustainable.
Aviva
On the surface, Aviva still looks like a decent income play. It offers a solid dividend yield of 5.73% and has grown its payout for five consecutive years at an average rate of 6.9%.
However, that growth may not be entirely sustainable. The current dividend payout ratio sits at a hefty 152%, which means the company is distributing more than it earns – never a long-term solution.
There are deeper concerns under the bonnet. Earnings dropped by 38% year on year, and return on capital employed (ROCE) is just 3%, suggesting a lack of efficiency in turning capital into profit. More alarmingly, revenue missed expectations by a significant 36% in 2024 – a clear sign the business is struggling to meet growth targets.
Also, it seems like Aviva has a habit of slashing its dividend every six to seven years, typically following a period of poor performance or strategic reshuffling. So while I still believe Aviva’s a reliable income stock, I don’t plan to increase my holding until I see more consistent earnings and revenue delivery.
Phoenix Group
Phoenix Group boasts one of the highest yields on the FTSE 100, currently paying 8.2%. The insurer has increased its dividend for 10 consecutive years and has become a mainstay for income-focused investors. In its latest results, it managed to increase its cash position by over 20% while shaving around 6% off its debt.
But the recent rally could be masking deeper financial vulnerabilities. Despite improving results, the company still posted a £1bn loss for the FY2024, and while its cash generation is generally strong, the balance sheet gives me pause. Phoenix holds £4.18bn in debt against just £1.75bn in equity — a worrying large discrepancy that could limit financial flexibility, especially if interest rates remain elevated.
For now, I’ll hold my position as I remain enthusiastic about the generous dividend but I’m not inclined to add more shares at this stage. The yield’s tempting, but the underlying profitability needs to improve before I consider topping up.
At the moment, I think there may be better opportunities to consider elsewhere. In particular, UK housebuilders and real estate investment trusts (REITs), where valuations look compelling and income potential remains strong.
The post These high-yielding FTSE 100 dividend shares are soaring! Time to buy more? appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
More reading
- How much passive income could a £20,000 ISA provide in a year?
- 3 dividend shares I think investors MUST consider right now (including a 9.1% yield!)
- Should I sell Legal & General Group and buy even more Phoenix shares instead?
- This £12k ISA produces £989 a year in cash passive income
- Are Aviva shares still a buy to consider for their 5.9% dividend yield after climbing 28% this year?
Mark Hartley has positions in Aviva Plc and Phoenix Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.
