Earlier today, while sifting through the highest-yielding stocks in the UK’s FTSE 100 index, I found 10 Footsie shares with dividend yields exceeding 7.4% a year. Nice.
Delicious dividends
While the blue-chip index currently offers a dividend yield of 4% a year, the average cash yield across these 10 dividend dynamos comes to a tidy 8.9% a year.
What’s more, I spotted that my family portfolio includes four of the five highest-yielding FTSE 100 shares. That’s because as an old-school value investor, I love to watch my dividends rolling in.
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For the record, here are four Footsie ‘dividend kings’ we own for their cash-generating powers:
| Company | Sector | Market cap | Share price | One-year change | Five-year change | Dividend yield |
| Vodafone | Telecoms | £21.7bn | 70.4p | -20.7% | -54.0% | 11.0% |
| Phoenix Group | Insurance | £5.3bn | 518.6p | -16.4% | -14.7% | 9.9% |
| M&G | Asset management | £5.3bn | 225p | +17.3% | 0.0%* | 8.9% |
| Legal & General | Asset management | £14.7bn | 243.8p | -5.5% | +0.3% | 8.0% |
Dividend dynamos
Why do these FTSE firms pay out such high dividends, averaging 9.5% a year across the four?
For telecoms giant Vodafone Group, it’s clear why it offers a double-digit dividend yield. For the past five years, the group has paid an unchanged dividend of 9 US cents per share. Meanwhile, its share price has more than halved over five years, sending its dividend yield skywards.
Phoenix Group — a leading manager of closed pension and insurance funds — has billions of pounds of spare capital on its balance sheet. This cash pile enables it to keep funnelling floods of cash to shareholders. Indeed, analysts expect its dividend to rise over the next two years.
It’s a similar story at 93-year-old investment manager M&G, which floated in London in late 2019. M&G has paid a market-beating dividend yield ever since, yet its shares are 225p today — matching their float price.
The ‘high-yielding financial stocks’ theme continues at storied investment manager Legal & General Group, founded in 1837. As with Phoenix and M&G, L&G’s capital strength allows it to pour cash into its owners’ pockets. Impressively, L&G even held its dividend during the Covid-19 crisis of 2020-21.
Dividends aren’t ‘easy money’
Dividend investing may sound like an easy route to riches, but history has taught me otherwise. Future dividends aren’t guaranteed, so they can be cut or cancelled without notice. Indeed, dozens of FTSE 100 firms reduced or withdrew their payouts when coronavirus collapsed stock markets.
Furthermore, ultra-high cash yields often don’t last. Some companies cut dividends in order to strengthen their balance sheets or invest in future growth. Also, when share prices rise, this drives down dividend yields.
Finally, though dividend investing isn’t for everyone, it works for me and my wife. Currently, we reinvest our dividends, buying more shares to boost our future returns. But when we retire, we’ll use this cash to offset our living expenses. And that’s why FTSE 100 dividends are a win-win for us!
