As a value investor, I buy shares for two reasons. First, share prices tend to increase over time (except during occasional market meltdowns, of course). This increasing asset value helps me build personal wealth to fund my retirement. And I also buy shares for their passive income in the form of cash dividends. Currently, the blue-chip FTSE 100 index offers a dividend yield nearing 4% a year. So what I aim to do is identify — and sometimes buy — cheap shares offering market-leading dividend yields.
Hunting for dividends
The big problem with dividend investing is that the vast majority of London-listed companies don’t pay dividends to shareholders. And no cash dividends means zero dividend yields. However, a quick trawl through the FTSE 100 index after Thursday’s market close revealed over 90 large-cap shares that do pay regular dividends to their owners.
Another issue for investors is that company dividends aren’t guaranteed and, therefore, can be cut or cancelled at any time. Indeed, during the Covid-19 crisis of spring 2020, dozens of big companies withdrew their cash payouts, sending their dividend yields to zero. Happily, as the economy bounced back in 2021, many of these Footsie firms restored their dividends (albeit at lower levels in some cases).
The FTSE 100’s highest dividend yields
For the record, these nine companies offer some of the FTSE 100’s highest dividend yields:
| Company | Sector | Share price (p) | 12-month change | Dividend yield |
| Persimmon | Housebuilding | 2,160.00 | -30.9% | 10.9% |
| Rio Tinto | Mining | 5,650.60 | -4.5% | 10.2% |
| Imperial Brands | Tobacco | 1,841.48 | 10.0% | 8.7% |
| M&G | Financial | 217.6 | -7.3% | 8.4% |
| Abrdn | Financial | 191.8 | -27.8% | 7.6% |
| Phoenix Group | Financial | 646.8 | -11.7% | 7.6% |
| Legal & General | Financial | 253.9 | -8.9% | 7.0% |
| Barratt Developments | Housebuilding | 488.92 | -35.7% | 6.8% |
| Aviva | Financial | 431.04 | -18.0% | 6.7% |
As you can see, these nine Footsie shares offer dividend yields ranging from 6.7% to 10.9% a year. Across all nine stocks, the average dividend yield comes to a market-thrashing 8.2% a year. That’s a large multiple of what I could hope to earn in a top-paying savings account. But this extra return reflects the fact that investing in shares is much riskier than having cash on deposit in a safe UK bank.
I don’t own these shares yet
I don’t own any of these nine shares — and I certainly wouldn’t build a portfolio out of only these stocks. For a start, a mini-portfolio of just nine shares would be highly concentrated. And with five shares in the financial sector and two in the property industry, this nine-share portfolio would be super-concentrated. But if you twisted my arm and forced me to buy all of these stocks, I probably would. I just couldn’t resist those juicy dividend yields of up to 10.9% a year.
Finally, the other great thing about dividends is that once I have them, I can do what I want with my cash. I can reinvest it in yet more shares, thus enhancing my future returns. Or I can use it to support my cost of living, which is soaring at the moment. And if one or more of these companies reduces or withdraws its dividends, then I can sell its shares and invest the money elsewhere for higher dividend yields!
