34% dividend yield for holders since 2004!? A FTSE 100 share I’d buy for passive income

This UK income stock has been hiking shareholder payouts for decades, so much so that its dividend yield for investors who bought in 2004 is now 34%!

| More on:

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.

The FTSE All-Share index is filled with high-dividend-yield stocks for investors to pick from. And right now, Phoenix Group Holdings currently offers the most generous payout in the top 100 UK businesses at 10.5%. Chasing high-yield opportunities can be rewarding. However, the results can pale in comparison to the gains of some lower-yielding shares in the long run.

The power of dividend growth stocks

Take London Stock Exchange Group (LSE:LSEG) as an example. Right now, if I were to buy shares at their current price, I would only start earning a 1.1% return from dividends. However, the story is very different for those who bought and held all the way back in 2004.

With last year’s dividend per share standing at 115p and the share price in 2004 trading close to 336p, shareholders who held on all this time are now earning a massive 34% yield! Given that the company has hiked dividends once again in 2024, this payout looks like it’s going to continue increasing.

That’s a useful lesson for anyone considering buying shares that come with a low dividend yield today. If the price rises regularly, it could mean a much bigger yield further down the line.

But back with London Stock Exchange Group, it has had little trouble generating cash flow over the last two decades. As the business powering the British stock market, demand for its financial services and data analytics hasn’t been lacking. And that’s enabled management to continuously hike dividends from 4.42p in 2004 to 115p in 2023 with a forecast for 125p in 2024.

With more money flowing to the bottom line, the share price has also delivered some terrific results. And investors who reinvested all dividends paid over the last 20 years have reaped a ginormous 4,513% total return. On an annualised basis, that’s the equivalent of 21.1% outpacing even Warren Buffett’s track record.

Too late to consider?

Looking at the business today, London Stock Exchange Group continues to show promise, in my opinion. It’s recently entered into a 10-year partnership with Microsoft to integrate its analytics solutions into cloud computing. The goal is to enable customers to gain easy access to all its market data from a single platform rather than going through third-party terminals.

So far, this partnership has started paying dividends of its own, with higher subscription numbers pushing up the group’s bottom line. And providing these trends continue, snapping up its shares today could eventually lead to a far more meaningful yield a decade from now.

Of course, no investment is without its risks. A growing concern surrounding this enterprise is the shrinking number of companies choosing to list their business in London versus other markets such as the US. In fact, since January 2015, the number of publicly traded companies in London has shrunk from 2,429 to 1,775.

From a market capitalisation perspective, the UK stock market is still huge, with an estimated £3.75trn combined market cap. However, suppose UK economic growth remains weak, and companies continue to seek to raise capital in other markets? In that case, London Stock Exchange Group’s impressive track record may start to crumble.

Nevertheless, I remain cautiously optimistic. That’s why I’m currently tempted to add this income-generating business to my portfolio once I have more capital at hand.

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »