How many FTSE 100 stocks have 8%+ yields?

Dr James Fox takes a closer look at FTSE 100 stocks with big dividend yields. But just how many of them offer yields in excess of 8%?

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There are a host of FTSE 100 stocks offering sizeable dividend yields. The average yield for the index is just 3.6%, but there’s a handful of stocks with yields more than double that.

The thing is, we can’t always trust big yields. In fact, it pays for us to be wary. So let’s take a closer look at some of the biggest on the FTSE 100, and explore what makes a yield sustainable.

Sustainable yields

Let’s start by addressing what is sustainable. Unfortunately, some dividend yields are just too good to be true. No dividends are guaranteed and they can be cut at any point. But if we do our research, we stand a better chance of investing in companies with reliable dividends.

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See the 6 stocks

We can start by looking at dividend coverage ratios. This is a financial metric that measures the number of times a company can pay dividends to its shareholders from its earnings. A coverage ratio above two is broadly considered healthy.

However, it’s worth recognising that cash flow is important here. Some companies, such as those in the pharma sector, may generate very little income for several years, and then see a huge spike as a new product receives approval. In such a case, dividend coverage could vary considerably year to year.

As such, I also look at companies with lower dividend coverage ratios, but strong cash flow.

The biggest yields

Some of the biggest sustainable yields on the FTSE 100 appear to be around 8% at the moment. However, several of these are stocks don’t tend to offer much in the way of share price growth and don’t often engage in share buybacks.

So here are the six stocks on the FTSE 100 currently offering dividend yields above 8%.

StockDividend yield
M&G9.8%
Vodafone9.6%
Phoenix Group8.9%
Legal & General8.2%
British American Tobacco8.1%
Glencore8.0%

Phoenix Group and Legal & General are already part of my portfolio. The companies offer very little in the way of share price growth, historically at least. However, I took the chance to top up on these stocks in recent months and weeks after the US banking crisis pushed the Legal & General and Phoenix Group share prices into reverse.

Glencore is another company on this list to interest me, but I’m yet to add it to my portfolio. The mining giant has a dividend coverage ratio around 1.8, which is still pretty strong. However, it’s a volatile part of the market, especially at this moment with so many competing and changing narrative about economic growth in 2023 and beyond.

I’m less keen to invest in British American Tobacco. One of the reasons it trades with low multiples and a high dividend yield is the lingering concern that regulatory change could have a profound impact on the business.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

James Fox has positions in Phoenix Group Holdings and Legal & General Group. The Motley Fool UK has recommended M&g Plc and Vodafone Group Public. 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.

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