2 UK shares I own for huge cash payouts

Among UK shares, five of the 10 highest-yielding FTSE 100 stocks are in the financial sector. But these two dividend dynamos are not!

| 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.

Black father and two young daughters dancing at home

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.

Earlier today, I was searching for UK shares that pay bumper dividends to patient investors. My latest filter revealed 10 FTSE 100 stocks whose cash yields exceed 8% a year.

These 10 high-yielding Footsie shares include four insurers/asset managers, two tobacco firms, plus one company in each of the banking, mining, housebuilding, and telecoms sectors. In other words, financial firms account for half of these dividend dynamos. But which shares stand out among the rest?

UK shares for big dividends

As a value investor, my family portfolio is weighted towards cheap, undervalued, and unloved dividend stocks. Here are two London-listed stocks that my wife and I own for powerful passive income.

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

Income share #1: Glencore

Glencore (LSE: GLEN) is a major player in the mining and commodity-trading markets. At the current share price of 463.7p, this group is valued at £57.3bn, making it a FTSE 100 powerhouse.

We bought Glencore stock in August for 435.1p a share. To date, we have an early paper profit of 6.2%, but we bought these shares purely for dividend generation.

Over one year, this stock is down 4.8% but up more than half (+50.4%) over five years. What’s more, both these figures exclude cash dividends, which are generous from Glencore and other mega-miners.

Trading on a multiple of 7.4 times earnings, this stock has an earnings yield of 13.5%. This means that its market-beating dividend yield of 7.5% a year is covered 1.8 times by historic earnings.

Now for the bad news. Future dividends are not guaranteed and can be cut or cancelled in tough times. And miners’ earnings are usually volatile, driven by boom-bust cycles in commodity prices. Indeed, Glencore cut its cash payouts in 2015, 2016, and 2020.

Despite the erratic nature of its earnings, I see Glencore’s stock as a long-term hold as a ‘dividend duke’. But I fully expect a bumpy ride as a shareholder in the years ahead…

Dividend stock #2: Vodafone

After we added Vodafone Group (LSE: VOD) to our portfolio in December 2022, the share price rose nicely until late February. It has since bombed, making it one of the Footsie’s worst performers in 2023.

For the record, we paid 89.4p a share for our holding, but the price stands at 77.98p as I write. Thus, we are down 12.8% since our purchase, which is hardly ideal.

Over one year, Vodafone stock has dropped by 22%, plus it has lost nearly half of its value (-48.9%) over five years. Yet I hope to see this global telecoms giant’s fortunes rebound and recover, while it continues to pay out fat dividends.

Vodafone’s big problem is that growth in its revenues, earnings, and cash flow has been weak for years. As a result, it now carries €33.4bn of net debt on its balance sheet. That said, this is down almost a fifth (-19.7%) from €41.6bn a year earlier.

Also, the falling share price has pushed Vodafone’s dividend yield into double digits (10% a year). Experience tells me that one of two things tends to happen to such high-yielding UK shares. Either the price goes up, or the dividend is cut and the cash yield (and share price) goes down. With Vodafone, I sincerely hope it will be the former, rather than the latter!

This AI stock is attracting investors like Michael Bloomberg and Peter Thiel…

Why are these legendary investors, already wealthy beyond imagination, drawn to this opportunity? The allure lies in more than just potential returns; it's a vote of confidence in a company poised for long-term success.

Imagine a revolutionary AI company that's not just participating in the digital media landscape but reshaping it entirely.

Trusted by giants like Amazon, Disney, and Netflix, the company reported nearly £637 million in revenue last year, marking a robust 7.8% growth over three years. Its impressive market reach and spirit of innovation are just the beginning of its story.

Best of all, we’re thrilled to offer you an exclusive glimpse into this game-changing AI investment, absolutely free.

Get your free AI stock pick

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.

Cliff D’Arcy has an economic interest in Glencore and Vodafone Group shares. The Motley Fool UK has recommended Vodafone Group. 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

Investing Articles

3 high-yield dividend shares to consider buying for a retirement portfolio

Dividend shares can provide retirees with regular passive income in their golden years. Our writer picks out three with yields…

Read more »

Investing Articles

Tesla stock has halved. Could it now double – or halve again?

After a wild few months for Tesla stock, Christopher Ruane weighs some pros and cons of the investment case. Could…

Read more »

Investing Articles

Does it make sense to start buying shares as the stock market wobbles?

Does a rocky stock market make for a good or bad time to start buying shares? This writer reckons it…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£15k of passive income a year? It’s possible with the right dividend strategy!

To figure out how much dividends are needed for a lucrative passive income stream, investors must understand which strategies get…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As US markets wobble, I’m listening to Warren Buffett!

The long career of billionaire investor Warren Buffett has included plenty of market turbulence. Here's what our writer's learnt from…

Read more »

UK money in a Jar on a background
Investing Articles

5 shares yielding over 5% to consider for a SIPP

Christopher Ruane introduces a handful of FTSE 100 and FTSE 250 shares he thinks an income-focussed SIPP investor should consider.

Read more »

Investing Articles

Here’s how an investor could invest a £20k ISA to target £1,500 of passive income per year

Can a £20,000 ISA throw off close to £30 per week on average of passive income when invested in blue-chip…

Read more »

Investing Articles

As gold hits $3,000, this FTSE 100 stock is primed for blast off

As Western institutions scramble to get as much gold as they can lay their hands on, Andrew Mackie believes this…

Read more »