Today’s a brilliant moment for investors like me who like to buy high-yield shares when they’re trading at cheap prices. A quick glance at FTSE 100 shares throws up five dividend income stocks that all yield around the 8% mark. That looks world-class to me.
Better still, all but one currently trades at around six or seven times earnings, well below the average FTSE 100 price/earnings ratio of 10.8 times.
I have recently bought two of the stocks inside my self-invested personal pension (SIPP). I liked insurer and asset manager Legal & General Group so much, I bought it twice. It’s actually my favourite stock on the FTSE 100 right now.
I’m on the hunt for income
The stock looks a steal trading at 5.8 times earnings, while offering the highest yield of the five featured here at 8.78%. The L&G share price has fallen 17% in the last 12 months, with investors wary after first half operating profits dipped from £958m in 2022 to £941m this year. That doesn’t worry me though.
These are tough times for fund managers, given recent stock market volatility. What matters most to me is that the dividend still looks safe, given L&G’s high Solvency II coverage ratio of 230% and capital generation of £947m. The share price can take care of itself.
If L&G didn’t exist, I would have fallen for fellow FTSE 100 insurer Aviva instead, dazzled by its whopping 8.24% yield. It’s also reported a robust first half, with profits up 8% to £715m. Aviva’s Solvency II coverage dipped to 202% but that’s still high, while the board hiked the dividend by 8%.
Avivia did post a pre-tax loss of £2.38bn in 2022 but it’s back in profit so far this year. But L&G has my heart.
I did buy Taylor Wimpey though. Like all housebuilders, it’s been hit by property market uncertainty which threatens sales and margins. However, I think the risks are reflected in its valuation of just 6.1 times earnings while its 8.16% yield looks unmissable to me.
When interest rates peak, this will be one of the first shares to recover. While I wait, I’ll reinvest my dividends. I think its shareholder payouts look secure but there are never guarantees.
Dividend-paying blue-chips for me
I don’t buy cigarettes stocks, but if I did, I’d dive into British American Tobacco and Imperial Brands, which yield 8.16% and 8.01% respectively. They’re also cheap, trading at 7.2 times earnings and 6.6 times.
The obvious downside for investors who buy these stocks is that profits will remain under constant pressure as smoking becomes socially unacceptable. However, that’s not the case everywhere. Also, British American Tobacco and Imperial Brands have proved adept at boosting their share of a declining market through strong branding.
The big question is whether the income is enough to compensate for the lack of potential capital growth. However, with the shares down 23.91% and 9.66% in the last 12 months, they could be due a recovery instead (although they could also continue to fall).
Five dividend yields of 8% a year from solid FTSE 100 shares makes today a great time to buy high-yield shares, if you ask me.
