Picture supply: Domino’s Pizza Group plc
I’ve been investing since 1986-87, so I’ve made my cash work more durable for 37+ years. Over this era, I’ve grown to like my dividends — the money payouts given to shareholders by firms. And my favorite place to search out these rivers of money is within the FTSE 100.
Scrumptious dividends
Investing nice John C ‘Jack’ Bogle as soon as remarked: “The market is often stupid, but you can’t focus on that. Focus on the underlying value of dividends and earnings.”
In its easiest sense, that’s what my investing technique does: improve my dividends (and capital beneficial properties) over time. And once I come to retire, I hope to have sufficient diversified, passive earnings to maintain me comfy in my senior years.
In fact, future dividends will not be assured, to allow them to be reduce or cancelled with little discover. Additionally, most London-listed firms don’t pay out dividends. Nonetheless, as I stated earlier, the blue-chip Footsie index is a superb supply of dividends.
Three dividend dynamos
Presently, the FTSE 100 affords a dividend yield of round 4% a yr. However these three Footsie companies simply beat this yield by huge margins (my desk is sorted from highest to lowest dividend yield):
| Firm | Enterprise | Market worth | Share value | Dividend yield | One-year change* | 5-year change* |
| Vodafone Group | Telecoms | £18.1bn | 66.73p | 11.6% | -27.8% | -53.7% |
| Phoenix Group Holdings | Asset administration | £4.9bn | 485p | 10.7% | -13.4% | -26.7% |
| British American Tobacco | Tobacco | £53.9bn | 2,417p | 9.6% | -18.5% | -21.7% |
These firms vary in dimension from nearly £5bn to almost £54bn and compete in very totally different enterprise sectors. However what they do have in widespread is all three shares provide market-thrashing money yields.
These vary from nearly 10% a yr from the UK’s largest tobacco agency to nearly 12% a yr from a widely known telecoms group. Throughout all three shares, the typical yearly dividend yield is 10.6% — versus that 4% from the broader FTSE 100.
Downsides to dividend investing
Time for me to level out out three pitfalls with investing in high-yielding shares.
First, the above dividend yields are trailing figures, so that they mirror the previous and never the longer term. Certainly, Vodafone has simply introduced that it’s set to halve its dividend subsequent yr to €0.045 from €0.09 per share. Thus, its ahead yield dives to five.3% a yr for 2025.
Second, firms that pay out giant proportions of their income in dividends generally fail to take a position sufficient in future progress. My desk reveals that every one three shares have seen their share costs tumble over one and 5 years — an indication of doable stagnation?
Third, all three firms carry substantial quantities of web debt, placing strain on their stability sheets. For instance, Vodafone Group has web debt of €33.4bn (£28.5bn) to service.
Regardless of these considerations, I proceed to be a fan of dividend investing. Certainly, my spouse and I personal two of the three shares proven above (however not the tobacco inventory, which my spouse refuses to personal).
In abstract, I hope to get pleasure from rising payouts from these and different dividend dynamos. That stated, I received’t hesitate to ditch even the highest-yielding shares when their outlook turns grim!
