As an older investor (I’m 55 next March), I’ve had 35 years to test and hone my investing strategy. And what history and experience have taught me is that cash dividends have been a major component of my long-term investment returns. That’s why I’m always looking out for cheap FTSE 100 shares that offer high dividend yields.
I love FTSE 100 dividends
Right now, the FTSE 100 index has a dividend yield of almost 4% a year. But not all Footsie firms pay dividends (although most do). For me, this blue-chip index is my happy hunting ground for market-beating dividends, backed by solid cash flows and earnings.
But I’m not after any old dividend yields. For example, I’m wary of cash yields in the double digits (10% and more). Several times in the past, I’ve been lured into buying very high-yielding shares, only to be let down by their slashed cash payouts and/or falling share prices.
Three high dividends from big businesses
Nowadays, I prefer my dividend income to come from solid, well-established, stable firms. For example, take these three shares, all of which offer juicy dividend yields to income investors:
| Company | Rio Tinto | Legal & General | Imperial Brands |
| Business | Miner | Insurer | Tobacco |
| Share price | 5,584p | 254.9p | 2,100p |
| 52-week high | 6,343p | 309.9p | 2,185p |
| 52-week low | 4,424.5p | 201.4p | 1,434.23p |
| 12-month change | +22.0% | -10.8% | +34.7% |
| Market value | £92.6bn | £15.2bn | £19.8bn |
| Price/earnings ratio | 6.3 | 7.5 | 12.8 |
| Earnings yield | 15.9% | 13.3% | 7.8% |
| Dividend yield | 9.5% | 7.3% | 6.7% |
| Dividend cover | 1.7 | 1.8 | 1.2 |
Here’s a brief bit of background on each business. Anglo-Australian mega-miner Rio Tinto is one of the world’s largest producers of base metals. But slowing economic growth in China and elsewhere could crimp Rio’s earnings in 2023.
Legal & General Group is one of the UK’s leading providers of life assurance, savings, and investments. Today, it manages around £1.4trn in client assets and has 10m customers worldwide. Yet I have to remember that as an asset manager, its performance is closely tied to future returns from stocks, bonds and other asset classes.
Imperial Brands is one of the world’s largest tobacco companies, with the fourth-largest global market share of cigarette sales. Of course, its products do huge personal and environmental harm, but as a smoker myself, I know how addictive its products are.
What draws me to all three companies is their market-beating dividend yields, ranging from 6.7% at Imperial Brands to 9.5% a year at Rio Tinto. Across all three stocks, the average yearly dividend yield is 7.8%. That’s almost twice the cash yield of the wider FTSE 100 index.
Which of these shares would I buy today?
If I had plenty of spare cash to invest, I’d happily buy all three of these stocks today. But if I could choose only one of these income shares, I’d go for Legal & General. That’s because its dividend yield of 7.3% a year is covered 1.8 times by past earnings. To me, this is a solid margin of safety, giving me confidence that the dividend is well-covered and has scope to increase over time.
As it happens, my family portfolio already contains shares in Rio Tinto and Legal & General. Hence, I’m looking forward to banking (or reinvesting) their juicy cash dividends in 2023 and beyond!
