These 9 FTSE 100 stocks have dividend yields of up to 10%!

High-yield FTSE 100 stocks offer great returns, but can they sustain payouts? Here are two simple tests I apply to try and steer clear of nasty surprises!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m shopping for FTSE 100 stocks that offer high dividend yields.

As a starting point, I found a list of the biggest payers, yielding from 7.4% all the way up to 9.9%.

But I’m wary of falling victim to a bait-and-switch. What if I buy the stock today for its sky-high yield, only for that dividend to be cut a few months later?

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!

Get your free passive income stock pick

Here are two simple tests I use to try and avoid such a disappointment.

Payout ratios

First, I like to look at the payout ratio. This tells investors whether the company’s dividends are covered by earnings. If a company pays dividends that are not backed up by its earnings, it must be drawing down its cash reserves or even going into debt to sustain them.

This simple metric shows me right out of the gate that the FTSE 100’s highest dividend yielder, global investment manager M&G, paid out 20p per share in 2022 while earning -67p. That loss was blamed on “negative market movements from the volatility experienced in markets throughout a challenging year”.

CompanySectorDividend yield2022 Payout ratio
M&GInvestment banking and brokerage services9.9%negative
Phoenix Group HoldingsLife insurance9%63%
Legal & General GroupLife insurance8.6%50%
VodafoneTelecommunications service providers8.3%120%
British American TobaccoTobacco8.2%98%
Rio TintoIndustrial metals and mining8%65%
AvivaLife insurance7.6%47%
Taylor WimpeyHousehold goods and home construction7.5%52%
Imperial BrandsTobacco7.4%85%
Data sources: TradingView and dividenddata.co.uk

Meanwhile, Vodafone paid out 120% of its earnings per share in dividends, as the telecommunications company’s earnings depressed by regulations from Brussels that put an end to roaming charges within the EU and the EEA.

British American Tobacco’s dividends were just about covered by earnings, with a payout ratio of 98%. That is far too small a margin for comfort in my view.

After applying the first test, I’m left with six contenders in the running: Phoenix Group Holdings, Legal & General, Rio Tinto, Aviva, Taylor Wimpey, and Imperial Brands.

Consistency is key!

Next, I’m looking to see how stable the dividend is. For this test, I’ll eliminate all the companies that have reduced their dividend payout at some point between 2016 and 2022.

That is not especially strict, considering there are plenty of so-called Dividend Aristocrats out there – that is, companies with 25 consecutive years of dividend growth.

Company2016201720182019202020212022
Phoenix Group Holdings (£)0.420.450.460.470.470.490.51
Legal & General (£)0.140.150.160.180.180.180.19
Rio Tinto (£)1.342.132.333.013.425.784.07
Aviva (£)0.310.360.390.20.280.290.31
Taylor Wimpey (£)0.030.050.060.040.040.090.09
Imperial Brands (£)1.551.711.882.071.381.391.41
Data source: TradingView

Phoenix Group Holdings and Legal & General are the only two that pass that test.

What next?

Having whittled down the list from nine to just two, I have given myself a more manageable workload.

I’ll now want to leaf through a few years’ worth of annual reports from Phoenix Group Holdings and Legal & General to better understand their businesses before making any decisions.

5 stocks for trying to build wealth after 50

Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Tovey has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Forecast: here’s how far the S&P 500 could crash in 2025

S&P 500 stocks are getting sold off as investors panic over economic uncertainty. But how far could the index fall?…

Read more »

Investing Articles

Is the FTSE 250 about to surge by 45%?!

The FTSE 250’s trading at a massive discount versus historical levels. Could the underappreciated growth index enjoy an upward correction…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Forecast: here’s how high can the FTSE 100 could climb in 2025

The FTSE 100’s already up over 6% since the start of the year as consumer spending starts to rise, but…

Read more »

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »