As a veteran value investor, I’m always looking out for dividend shares that offer high cash yields. Ideally, I look for high-quality, established companies with strong cash flows whose shares trade on low earnings multiples and offer market-beating dividend yields.
Here are six high-income stocks I’m drawn to right now.
Six top dividend shares
These six income-generating stocks offer some of the FTSE 100 index’s highest cash yields (for context, the Footsie itself offers a dividend yield of around 3.8% a year):
| Company | Sector | Share price | 12-month change | Market value | Dividend yield |
| M&G | Asset management | 217.5p | +22.0% | £5.1bn | 8.5% |
| Vodafone | Telecoms | 100.7p | -16.7% | £27.1bn | 7.7% |
| Imperial Brands | Tobacco | 1,988.5p | +33.8% | £18.5bn | 7.1% |
| British American Tobacco | Tobacco | 3,110.5p | +4.4% | £69.6bn | 7.1% |
| Rio Tinto | Mining | 5,973p | -0.8% | £99.8bn | 7.1% |
| Legal & General | Asset management | 263.6p | +10.3% | £7.8bn | 7.1% |
As FTSE 100 firms, all these companies are substantial businesses. The smallest, M&G, is valued at over £5bn, while the largest, mega-miner Rio Tinto, is a near-£100bn Goliath.
What’s more, these six dividend shares have had mixed fortunes over the last 12 months. The worst performer, Vodafone Group, has lost a sixth of its value. Meanwhile, the star performer is Imperial Brands, which has seen its share price leap by more than a third over the past year.
Curiously, four of these six income stocks offer the same trailing (historic) dividend yield of 7.1% a year. Two of these companies — Imperial Brands and British American Tobacco — are highly cash-generative businesses that routinely churn out huge profits, earnings, and cash dividends.
The highest dividend comes from asset manager M&G, whose shares offer a yearly cash yield of 8.5%. To me, this looks like a decent reward for the ongoing risk of owning this ‘boring’ stock.
I already own three of these stocks
My wife bought shares in three of these six companies last year. Today, our family portfolio includes shares in Legal & General Group, Rio Tinto, and Vodafone. We bought these dividend shares for their cash yields, aiming to hold them for the long term.
I would also buy the three remaining shares (BAT, Imperial Tobacco, and M&G) for their market-beating dividend payouts. However, my wife, who values ESG (environmental, social, and governance) factors in her investing strategy, does not want tobacco stocks in our family portfolio.
Therefore, though UK tobacco stocks have been excellent long-term winners, I have no plans to buy BAT and Imperial Tobacco for now. Then again, I am very keen on M&G as a future addition to our portfolio. Indeed, I hope to buy this dividend share shortly after the new tax year starts on 6 April.
Finally, two warnings. First, future dividends are not guaranteed — they can be cut or cancelled at any time. Second, it seems likely that the UK economy will enter recession this year, which could dent company earnings. But as a dividend investor, I’m in it for the long haul!
