John D. Rockefeller, American business tycoon and founder of Standard Oil, loved his passive income. The world’s richest man in his day, Rockefeller remarked, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” I’m no Rockefeller, but I also enjoy collecting regular share dividends. That’s why I often trawl through the FTSE 100 index searching for stocks with high dividend yields. Here are three high-yielding shares that I don’t own, but would buy for their hefty dividends.
Three high dividend yields from the FTSE 100
The chart below lists three of the Footsie’s highest dividend yields (sorted from highest to lowest):
| Company | Sector | Share price |
Market value |
P/E ratio |
Earnings yield |
Dividend yield |
| Rio Tinto | Mining | 4,768.5p | £79.2bn | 5.7 | 17.6% | 10.3% |
| M&G | Financial | 199p | £5.2bn | 85.0 | 1.2% | 9.2% |
| Imperial Brands | Tobacco | 1,582p | £15.0bn | 5.4 | 18.6% | 8.7% |
Let’s review each of these three high-yielding shares in turn. The highest yield comes from Anglo-Australian mining giant Rio Tinto (LSE: RIO), which sells iron ore, aluminium, copper, lithium, and diamonds to over 2,000 companies worldwide. The group operates 60 mining projects across 35 countries, employing 47,500 workers. With a market value above £79bn, Rio is a FTSE 100 super-heavyweight. Rio’s size and strength are also reflected in its double-digit earnings yield and dividend yield. Right now, Rio’s 10.3%-a-year dividend is one of the highest around. Indeed, it is close to 2.6 times the FTSE 100’s dividend yield of 4% a year. But mining stocks are notoriously volatile — and metals prices have been bouncing about wildly of late. In addition, Rio cut its dividend in 2016 and may have to if prices slumped again.
Second on my list is investment manager M&G (LSE: MNG), formerly part of Prudential group until its demerger in October 2019. A relative minnow within the FTSE 100, M&G is valued at just over £5bn. Also, M&G shares have weakened recently, having peaked at 254.3p on 1 June. Having slumped by almost a quarter (-21.7%) since then, I think this stock has fallen into the Footsie’s bargain bin. This price decline has lifted M&G’s dividend yield to a handsome 9.2% a year, also one of the FTSE 100’s highest. As one of the UK’s leading asset managers, M&G’s results tend to strengthen as stock markets rise. At the current price, I regard M&G as a safe, solid, and secure income-generating stock. That said, the group faces two hurdles in the form of falling management fees and much larger, aggressive rivals.
I like Imperial for income
My final high-yielding FTSE 100 stock is Imperial Brands (LSE: IMB), a leading supplier of tobacco, cigarettes, and smoking products. In 2020, Imperial sold more than 330bn cigarettes in 160 countries. Its leading brands include Davidoff, Gauloises, JPS, Kool, West, and Winston. The Bristol-based firm’s origins date back to 1786, but its harmful products are slowly falling out of favour with modern consumers. Also, its stock is often shunned by ESG (environmental, social, and governance) investors. Nevertheless, the company’s huge cash flow allows it to pay generous dividends to shareholders. Right now, Imperial’s dividend yield is a healthy 8.7% a year. However, the company did slash its dividend by a third in May 2020, in response to the Covid-19 crisis. However, global tobacco sales were actually up in the first half of this year. Hence, despite Imperial’s high net debt, I’m drawn to this stock for passive income!
