2 FTSE 100 dividend shares I’d buy for income

One of these two dividend shares shot up recently, while the other keeps falling. But I bought both for their bumper dividend yields of almost 6.5% a year!

| 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.

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Though savings rates have been rising this year, they still look fairly modest to me. Top easy-access UK savings accounts pay interest of around 1.8% a year before tax. Meanwhile, soaring inflation — the rising cost of living — is eroding the value of my cash by 9.4% a year. Ouch. That’s why I’ve been adding extra income to my family portfolio by buying more dividend shares. For example, here are two high-yielding stocks that I currently own, but would gladly buy again for their market-beating cash yields.

Dividend share #1: Aviva

Aviva (LSE: AV) is the UK’s largest general insurer, as well as being a major player in the life and pensions market. Its former household-name brands include Commercial Union, General Accident, and Norwich Union.

Having worked in this sector for 15 years, I know Aviva and its business model well. However, Aviva shares have been hammered in 2022, following regulatory changes to insurance quotes, plus rising claims costs. Here’s how this stock has performed over six time scales:

Five days13.4%
One month17.3%
Six months-19.3%
2022 YTD-13.9%
One year-15.9%
Five years-32.3%

As recently as 29 March, Aviva stock peaked at 606.58p. As I write, it stands at 464.8p — almost a quarter (-23.4%) below this 52-week high. This dividend share leapt last week, after it reported first-half results well ahead of market expectations. Nevertheless, Aviva stock has lost nearly a third of its value over the past half-decade.

Recently, my wife bought Aviva shares at 397p each. They have since climbed over 17%. But even after this recent rebound, this share still offers a dividend yield nearing 6.4% a year. This is around 1.6 times the FTSE 100‘s cash yield. This strikes me as a decent reward for the risk of owning a stock that has been largely stagnant for a number of years.

Income stock #2: Royal Mail

The second of my two high-yielding shares is Royal Mail (LSE: RMG), the well-known provider of our universal postal service. The group’s origins go back to 1516 and King Henry VIII, but its modern incarnation is made up of two distinct businesses.

One — the UK postal service — is currently beset by strikes and industrial action over pay demands, plus rapidly reversing profits. Meanwhile, the other — Amsterdam-based GLS — is a highly profitable global parcels service. But Royal Mail’s recent troubles have sent its shares tumbling, as shown below:

Five days-2.6%
One month-2.1%
Six months-38.5%
2022 YTD-46.8%
One year-46.4%
Five years-31.3%

During these recent price falls, my wife bought this cheap stock at 273.2p for its generous dividend yield. It now trades at 269.3p, roughly 4p below our buying price. But this leaves Royal Mail shares with a higher dividend yield of 6.2% a year. Also, this payout is covered almost 3.7 times by company earnings, which seems like a decent margin of safety for me.

There could be trouble ahead

However, risks are rising right now for UK shareholders. For example, interest rates are rising to cool down red-hot inflation, borrowing costs are going up (notably for home loans), energy bills are at crisis levels, and war rages on in Ukraine. Even so, I’d happily buy these dividend shares for their decent cash yields and long-term prospects!

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 assessed. Consider taking independent financial advice.

Cliffdarcy has an economic interest in Aviva and Royal Mail shares. 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »