The FTSE 100 is home to many dividend-paying companies. These large-cap shares are often established and relatively mature businesses.
As such, they tend to see slower growth but greater stability than some smaller companies, such as those found in the AIM index. On average, they also offer more dividends to shareholders.
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Share prices have tumbled in recent months amid signs of a slowing economy and that has led to some attractive dividend yields for some FTSE 100 shares.
8% dividend yield!
Phoenix Group (LSE:PHNX) currently offers an 8.2% dividend yield. That’s far greater than the FTSE 100 average yield of 3.8%. It also provides a relatively reliable source of passive income.
One clue to reliable dividends is the number of years a company has been paying income to shareholders. For Phoenix Group, it has a solid 13 years under its belt. Not only that. It also managed to raise its dividend for six years in a row. That’s impressive.
As the UK’s largest long-term savings and retirement business, it has some defensive qualities that I find appealing.
Defensive top pick
First, it has over 240 years of experience. Its rich history demonstrates a dependable business.
Next, it delivers predictable cash flows. That’s ever more important in uncertain times.
Lastly, it has a shareholder-friendly dividend policy that’s designed to raise its dividends over time.
Bear in mind that as it holds many financial assets, it’s exposed to several risks from falling stock markets and rising interest rates. That said, it holds more than sufficient cash surplus and manages to hedge these risks.
And of course, past performance is no guarantee of future returns.
I’m not expecting much share price growth from Phoenix Group. But I’d still buy the shares today. I reckon it can continue to provide a regular and inflation-busting dividend yield for years to come.
Next, I’m considering tobacco giant Imperial Brands (LSE:IMB). Like Phoenix, it’s another reliable dividend payer. Impressively, it has been paying dividends for 25 years. Coincidentally, also like Phoenix, it currently has an 8.2% dividend yield.
On a £10,000 investment, that’s passive income of £820 over one year. In the current climate of rising inflation, I find that quite appealing.
One thing I have to bear in mind is that dividends can sometimes be reduced or even suspended. It was a frequent occurrence during the Covid crash in March 2020 when many firms were uncertain of their income.
That said, Imperial Brands has proven itself as a reliable operator. It also has more than enough income to cover its anticipated dividends.
Business in transformation
Its industry is undergoing a transformation as a response to falling smoking rates globally. This is a risk to Imperial, but also an opportunity. Last year, it outlined a new strategic plan.
Broadly speaking, it will focus on its five most important markets of the US, Germany, the UK, Australia and Spain. These represent 72% of its operating profit for combustible products. Also, next-generation products (NGP) are widely expected to be the fastest-growing segment. As such, Imperial plans to build a disciplined and targeted approach for these heated devices.
All things considered, I’d buy both of these FTSE 100 dividend shares and I’d happily add them to my Stocks and Shares ISA today.