So far, 2022 has seen a positive start for the FTSE 100, with the index gaining 2.4% since 2021. As I write, the Footsie is within 4.4% of its all-time intra-day high of 7,903.50 points on 22 May 2018. Were it to gain another 350 points, it would reach a new record. However, over five years, the index has gained less than 5% (excluding dividends). Thus, I still view the FTSE 100 as undervalued in historical and global terms. Hence, here are three high-yielding Footsie shares that I don’t own, but would buy today for their income streams.
FTSE 100 stock #1: British American Tobacco
My first high-yielding FTSE 100 stock is hardly one for ethical, social, and governance (ESG) investors. British American Tobacco (LSE: BATS) is a world-leading supplier of cigarettes and tobacco — addictive and harmful products. Yet about a fifth of adults worldwide smoke, providing BAT with massive cash flows, profits, and earnings. Currently, BAT shares trade at 3,101.09p, valuing the group at £71.2bn — a FTSE 100 powerhouse. Today, this stock trades on 11.5 times earnings and offers an earnings yield of 8.7%. BAT’s dividend yield of almost 7% a year is one of the highest in the Footsie. In 2022, BAT is forecast to pay total cash dividends to shareholders of over £5.2bn. That’s the third-highest pay-out in the UK. As a smoker myself, I’d buy BAT stock today. However, the group faces two future headwinds: declining smoking rates and higher interest rates on its £40.5bn of net debt.
Dividend share #2: M&G
My second dividend stock is investment manager M&G (LSE: MNG). M&G was part of Prudential until its flotation in October 2019. Prudential’s origins date back to 1848, while M&G launched the UK’s first mutual fund in 1931. As I write, the M&G share price hovers around 218.3p, valuing the company at nearly £2.7bn. Despite global stock markets soaring in 2021, M&G shares have gained only 13.1% over the past 12 months. This is barely ahead of the FTSE 100’s 12.3% rise. M&G’s earnings took a hit in 2021, sending its price-to-earnings ratio soaring to 93.2. However, M&G is one of the highest-yielding stocks on the London Stock Exchange. Its cash yield of 8.4% a year is more than double the FTSE 100’s 4%. It’s this bumper pay-out that attracts me to M&G. However, the group does faces ongoing fee erosion, plus tough competition from giant US rivals in the years ahead.
High-yielding stock #3: Rio Tinto
My third and final FTSE 100 dividend dynamo is miner Rio Tinto (LSE: RIO). Rio Tinto (‘red river’ in Spanish) is a mining Goliath, digging up iron ore, aluminium, copper, and lithium across the globe. Its 60 mining projects across 35 countries generate enormous cash flows, profits, and earnings for this Anglo-Australian business. At its current share price of 5,581p, Rio Tinto is valued at £90.9bn, making it one of the FTSE 100’s largest firms. At present, Rio shares trade on a lowly price-to-earnings ratio of 6.6 and a hefty earnings yield of 15.2%. Also, its dividend yield is a thumping 8.8% a year — around 2.2 times the wider Footsie’s yield. As an income-seeking value investor, I find these fundamentals almost mouth-watering. However, long experience has taught me that mining stocks can be very volatile — and miners often slash their dividends when metals prices slump! Nevertheless, I’d still buy Rio today.
