These cheap FTSE 100 dividend shares will pay me 9.9% a year on average!

This Fool takes a closer look at three bargain dividend shares offering a mouth-watering income stream.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A person holding onto a fan of twenty pound notes

Image source: Getty Images.

With the cost of living galloping higher and savings accounts paying a pittance, I’m tempted to funnel any spare cash I have into cheap dividend shares in the FTSE 100.

Today, I’m looking at three examples that, collectively, could generate an average yield of 9.9%! Too good to be true? Here’s my take.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Phoenix Group Holdings

Phoenix Group Holdings (LSE: PHNX) is my first stop. The owner of Standard Life has around 13 million customers on its books. This makes it the largest long-term savings and retirement business in the UK.

At face value, this is not a business that gets my pulse racing and makes me want to buy the stock. This is until I look at the potential dividend stream on offer.

Analysts believe Phoenix will dish out 49.9p per share this year. At today’s share price, that becomes a juicy yield of 8.1%, covered roughly 1.5 times by profit. By comparison, the FTSE 100 index as a whole returns ‘just’ 3.5%. The valuation is equally tempting. Having fallen by 6% year-to-date, Phoenix trades at 8 times forecast earnings.

My one big concern here is that growth is likely to be fairly muted going forward. As such, a large capital gain on top of the dividends might be asking for too much. This places more significance (and therefore more pressure) on the latter to keep going.

Rio Tinto

Holders of FTSE 100 mining giant Rio Tinto (LSE: RIO) continue to enjoy a superb 2022, so far. Thanks to soaring metal prices, shares have climbed 26% in value.

This would be a great result in itself. However, my primary reason for continuing to like Rio is the dividend stream on offer. Right now, the blue-chip is down to yield an astonishing 10.6% in FY22.

Naturally, a cash payout this big doesn’t come without risk. Commodity markets are notoriously volatile and earnings projections can change on a dime. Mining can also be dangerous, unpredictable and costly work.

Then again, growing my wealth slowly is the Foolish mentality in a nutshell. Rio does stand to benefit enormously from the ongoing drive to renewable energy sources (and the need for essential metals like copper).

Having been bullish on this company for much of 2021, my view hasn’t changed. Although the share price performance may moderate over the rest of this year, I’d still buy today.


Housebuilder Persimmon (LSE: PSN) completes my FTSE 100 dividend share trio. It offers a staggering prospective yield of 10.9%.

Such a massive payout makes me wary. As hot as the housing market currently is, there will come a time when demand (temporarily) moderates. Persimmon’s payout is also barely covered by earnings. This could conceivably make the income stream susceptible to a cut if the sector continues to be hit by rising costs.

On an optimistic note, knowing that the other two stocks mentioned here operate in completely different sectors does give me some protection through diversification. Persimmon’s valuation is hardly excessive either, at just over 8 times forecast earnings. So while there is undoubtedly risk here, the potential rewards arguably outweigh it.

If outpacing inflation and/or generating passive income were my goal(s), I’d be comfortable buying a slice today.

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Paul Summers 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »