The FTSE 100 is the index of the London stock market’s largest firms. It includes businesses with some very large dividend yields, like the three below, all of which I believe are worth considering.
Legal & General
When 9.3% is regarded as a low yield from a blue-chip company, my attention is grabbed!
But of the three FTSE 100 businesses I discuss here, this one is in fact the lowest-yielding right now!
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The company in question is Legal & General (LSE: LGEN).
Like many people, when I think of that name, my mind immediately conjures up a multi-coloured umbrella. That sort of brand awareness takes decades to build — and I see it as a strong competitive advantage.
Competitive advantage helps, because Legal & General competes in the crowded market of retirement-linked financial services.
It is crowded because it is so big and potentially lucrative. That helps explain why Legal & General is able to generate so much excess cash that not only does it plan to keep growing its dividend annually, but it has also been buying back its own shares.
I see risks here, as with any share. The company’s profit has fallen for the past two years. If the stock market enters a rough patch and asset valuations fall, Legal & General could see weaker earnings. As an investor focused on the long term though, I plan to keep holding this FTSE 100 share.
M&G
Another such share I have no plans to sell is M&G (LSE: MNG).
With a yield of 9.8%, it is potentially more lucrative right now in terms of passive income streams even than Legal & General. Whereas Legal & General aims to grow its dividend per share annually, M&G has done so in recent years but its stated aim is either to grow or simply maintain the payout each year.
Can it do so?
On one hand, I could point to possible storm clouds. Policyholders (excluding the Heritage business division) have been pulling more cash out of the asset manager’s funds than they have been putting in, based on the firm’s interim results.
If that lasts, it could mean lower earnings.
Still, with a large customer base, strong brand and business mode that has demonstrated large cash generation potential, I have no plans to sell my M&G shareholding.
Phoenix
A double-digit percentage annual dividend yield is a rare thing in the blue-chip index.
But that does not mean it is unheard of. Indeed, right now, Phoenix (LSE: PHNX) offers a mouth-watering yield of 10.4%.
Even better, the company has raised its dividend per share annually over the past few years.
It has also set out a plan to keep doing so (something known as having a progressive dividend policy), although in practice whether it is able to deliver on that will depend on business performance. After all, no company’s dividend is ever set in stone.
What sort of company is Phoenix, anyway? It may be far from a household name, but some of its operating units like Standard Life are very well known. The business has proven it can generate substantial excess capital to fund dividends.
If the property market weakens, valuations in the firm’s mortgage arm could result to weaker earnings. But from an income perspective, I see Phoenix as a FTSE 100 share investors should consider buying.
