Beginning in June 2022, my wife and I built a new family portfolio of 27 value and growth shares. In total, we acquired seven new US stocks, 15 FTSE 100 shares, and five FTSE 250 holdings.
We love FTSE 100 income shares
Of the 20 new UK stocks we now own, we bought all but one for their ability to generate long-term dividend income.
We are big fans of the passive income (and capital gains) that cheap shares can generate in the long run. Hence, here are two undervalued FTSE 100 stocks we are pleased to own for their income-generating powers.
1. M&G
Asset manager M&G (LSE: MNG) released its latest half-year results today (Wednesday, 20 September) — and I was pretty pleased with them.
Notably, adjusted operating profit leapt to £390m, up 30.9% from the £298m recorded a year earlier. Also, the firm generated £505m in operating capital, up 16.6% from the £433m for H2/2022.
My only concern with M&G’s latest figures is assets under management fell to £332.8bn, versus £348.9bn at mid-2022 and £342bn at end-2022. But M&G’s board increased the interim dividend to 6.5p, from 6.2p a year earlier, a rise of 4.8%.
At the current share price of 202.9p, M&G is valued at £4.8bn. Its stock offers a market-beating dividend yield of 9.7% a year. This thrashes the FTSE 100’s yearly cash yield of around 4%. Yet the share price is up only 3.4% over one year and has lost 7.8% since M&G’s October 2019 flotation.
Then again, M&G’s future fortunes are closely tied to financial markets. For example, when stock and bond prices both plunged in 2022, the company’s profits were wiped out. But as we aim to keep this holding for many years, this risk won’t keep us awake at night.
2. L&G
Sticking with financial stocks, my wife and I are happy holders of Legal & General Group (LSE: LGEN) shares. As with M&G, L&G’s success is largely driven by the ups and downs of capital markets. However, also like M&G, L&G has a rock-solid balance sheet, allowing it become a dividend dynamo.
As I write, L&G stock trades at 231.2p, valuing the group at £13.8bn. Frankly, I’m amazed the price is so low, given the shares hit a 52-week of 311.13p on 8 March 2023. But then financial stocks worldwide plunged as a US banking crisis rocked markets.
Over one year, this share is down by 10.8%, while the price has declined by 12.2% over five years. Nevertheless, I expect the next five years to be better for shareholders than the previous five. That’s because these figures exclude the mighty cash rewards that the company pays to patient shareholders.
Currently, this stock offers a dividend yield of 8.5% a year — again, way ahead of the FTSE 100’s cash yield. In 2011, L&G’s dividends per share totalled 6.4p. Last year, they reached 19.37p — over three times the size.
Of course, company dividends are not guaranteed, so they can be cut or cancelled at any time. In addition, future financial crises could throw a spanner in both firms’ works — hitting their earnings and cash flow. Even so, I intend to hold both of these dividend dukes for a long, long time!
