The FTSE 100 index has been delivering strong returns for decades now. Since the mid-1980s, the Footsie has delivered an average annual return of 8%. This comprises of roughly 4% in capital gains, and another 4% in dividend income.
This is pretty good. But I’m confident that I can make an even-better return by buying high-dividend shares. Here are three on my radar today.
WPP
Forward dividend yield 5%.
Advertising agency WPP (LSE:WPP) hasn’t had an easy time of late. Weak marketing spending, and particularly in the North American tech sector, has hampered its ability to grow revenues.
Sales dropped 1.4% in the first quarter. The top line may stay under pressure too, if interest rates remain at current levels.
But my enthusiasm for WPP shares remains undimmed. The business, which provides communications and advertising services in 100 countries, has enormous scale and tight relationships with blue-chip companies across multiple sectors.
I think it will bounce back sharply when economic conditions improve, helped by its pivot to the fast-growing digital ad market.
Phoenix Group Holdings
Forward dividend yield 11.1%.
The dividend yield at Phoenix Group Holdings (LSE:PHNX) may be hard to believe. But the pensions, life insurance and savings giant has a long record of providing large and growing shareholder payouts.
This is thanks in large part to its ability to create spectacular amounts of cash. The FTSE 100 firm generated a whopping £2bn worth of cash in 2023, up £500m and above its target of £1.8bn. It also hit its target of generating £1.5bn of new business cash a full two years ahead of plan.
And as of December, its Solvency II capital ratio was 176%. This was at the top end of the firm’s 140-180% target, and provides current dividend projections with added strength.
A word of warning though. Phoenix’s earnings could come under strain if interest rates remain at current levels. In this scenario, consumer spending may struggle, while asset values would also be adversely impacted.
Aviva
Forward dividend yield 7.6%.
Like Phoenix Group, Aviva (LSE:AV.) has significant scope to grow as Britain’s elderly population soars in size. The company — which also has operations in Canada — provides life insurance, pensions, health protection and wealth management, giving it multiple ways to exploit ongoing demographic changes.
Competition in the financial services sector’s fierce. And the company has to paddle extremely hard to grow profits. But its market-leading position across multiple product lines indicates it has the tools and the knowhow to succeed.
Aviva is, for instance, the leading life insurance provider in the UK, where it holds nearly a quarter of the market.
An ambitious approach to digitalise its operations could also help Aviva to outperform its peers over the long term. Recent steps include using artificial intelligence (AI) to help it process claims, and overhauling its digital platforms to boost cross-selling possibilities.
