As a veteran value investor with 35 years’ experience, my stock-selection criteria are very well-established. For my family portfolio, I’m always looking out for cheap shares in solid companies that pay attractive dividend yields. And because most London-listed stocks don’t pay dividends, I tend to concentrate my search within the blue-chip FTSE 100 index.
High passive income from the FTSE 100
There are three reasons why I like buying shares with high dividend yields. First, these cash returns help to offset share-price declines during falling markets. Second, I can choose what to do with these payouts (I can reinvest them by buying more shares, or spend this cash). Third, history shows that roughly half of the long-term returns from UK shares comes from cash dividends. And total dividends paid by FTSE 100 firms are expected to reach £81.2bn in 2022, which is a terrific torrent of cash to grab.
Four Footsie firms with market-thrashing dividend yields
In my latest trawl through the FTSE 100, I used a simple stock screener to find large-cap shares with dividend yields of at least 8% a year. This search quickly found these four high-yielding Footsie stocks (sorted from highest to lowest dividend yield):
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
| Company | Sector | Share price | 12-month change | Market value | P/E | Earnings yield | Dividend yield | Dividend cover |
| Persimmon | Housebuilding | 2,244p | -30.7% | £7.2bn | 9.1 | 11.0% | 10.5% | 1.0 |
| Rio Tinto | Mining | 5,951.2p | -3.1% | £100.8bn | 5.7 | 17.4% | 9.7% | 1.8 |
| Imperial Brands | Tobacco | 1,796p | 11.4% | £17.0bn | 8.4 | 11.9% | 8.9% | 1.3 |
| M&G | Financial | 219.4p | -11.8% | £5.6bn | 68.1 | 1.5% | 8.3% | 0.2 |
As you can see, these four stocks offer yearly dividend yields ranging from 10.5% at housebuilder Persimmon to 8.3% at asset manager M&G. The average dividend yield across all four shares comes to a juicy 9.4% a year (versus under 4% a year for the wider FTSE 100).
Interestingly, though these shares pay high cash yields, these four companies are all very different. In terms of size, mega-miner Rio Tinto is a near-£101bn colossus, while FTSE 100 minnow M&G is valued at under £6bn. What’s more, they all come from different industry/market sectors (property, natural resources, consumer goods, and financials).
Another point I’d make is that at one of these FTSE 100 shares (M&G), the company’s earnings yield is too low to cover its dividend yield. But that’s because these are trailing (backward-looking) figures — and M&G’s forecast 2022 earnings should easily cover its predicted cash returns to shareholders.
Which of these high-yielders would I buy today?
I don’t own any of these four FTSE 100 shares today, but which would I buy now? My answer is simple: to diversify (spread around) my sources of passive income, I’d gladly buy all four of these dividend dynamos right now. And that’s despite my worries over Covid-19, red-hot inflation, rising interest rates, war in Ukraine, and China’s slowing economic growth!
