On Tuesday, I wrote about my love of dividends: the regular cash payments paid by some companies to shareholders. Over the years, this passive income has really built up, contributing tens of thousands of pounds each year to my family portfolio. But most London-listed stocks don’t pay dividends. What’s more, just 10 FTSE 100 companies accounted for over half (54%) of all dividends in 2020, according to investment group A J Bell.
As a dividend-loving investor, I’m always seeking high-yielding shares to add to my family portfolio. For me, one good place to look for chunky dividends is in the FTSE 100, where I see plenty of hidden value. Here are three Footsie dividend dynamos that I’d consider buying for their generous passive income.
FTSE 100 stock #1: BATS (7.6%)
British American Tobacco (LSE: BATS) is the world’s largest cigarette manufacturer. This makes BATS a stock for ethical and socially responsible investors to avoid. But BATS has been a FTSE 100 dividend darling for decades. The business — founded 119 years ago in 1902 — had global sales of £25.8bn in 2020. These huge revenues generate enormous cash flows, much of which is returned to shareholders as cash dividends. At Thursday’s closing price of 2,818.5p, BATS is valued at £64.6bn, making it a FTSE 100 super-heavyweight. At this level, BATS shares trade on a price-to-earnings ratio of 10.3 and an earnings yield of 9.7%. The dividend yield of nearly 7.6% a year is among the five highest yields in the Footsie. That’s why I regard this smoking stock as a top investment for income-seekers like me, although I don’t own BATS yet.
Income share #2: LGEN (6.4%)
Having worked in the insurance industry for 15 years, Legal & General Group (LSE: LGEN) is one British business I’ve grown to admire. As a household name founded in 1836, almost everyone in the UK knows of this leading provider of life assurance, savings, and investments. Today, L&G manages over a trillion pounds of wealth for more than 10m customers. In short, L&G is a class act in its sector — but it also faces intense competitive pressure from massive global rivals. On Thursday, L&G shares closed at 273.5p, valuing the group at £16.4bn — a FTSE 100 middleweight. Currently, this stock trades on a price-to-earnings ratio of 13.1 and an earnings yield of 7.6%. L&G’s dividend yield of 6.4% a year is among the top 10 in the Footsie. It’s pretty rare that I get such a high cash yield from such a solid business, which is why L&G is on my buy list for passive income.
High-yield stock #3: GSK (5.7%)
My third stock is pharmaceutical giant GlaxoSmithKline (LSE: GSK). This FTSE 100 share has jumped +17.3% from its 26 February low — good news for me as a GSK shareholder. I’ve held onto them for decades as the price has zigzagged between £10 and £20 since 2000. My loyalty comes simply because this global healthcare Goliath has paid an 80p-a-share dividend for the past five years. At Thursday’s closing price of 1,396.6p, this translates into a dividend yield above 5.7% a year. This £69.5bn FTSE 100 titan’s shares currently trade on a price-to-earnings ratio of 13.2 and an earnings yield of 7.6%. The next quarterly dividend of 19p is due to be paid on 8 July to shareholders as at 20 May. For now, I’ll keep holding this stock, although GSK plans to cut its dividend in 2021/22. However, if the coming cut is more than, say, 25%-30%, then I might finally sell and move on.
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Cliffdarcy owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. 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.