Investing in high-yield dividend stocks is my favourite way to earn passive income. Recently I’ve been looking for cheap FTSE 100 and FTSE 250 shares with market-leading shareholder distributions.
If I had some cash to invest, here are two I’d buy today.
Legal & General Group
When looking for big dividend players, I can’t ignore Legal & General (LSE: LGEN) shares. A 26% fall in the L&G share price over two months has pushed the forward dividend yield up to a whopping 8.81%.
First, let’s examine the risks facing the FTSE 100 financial services outfit. Pensions are a big part of its business. Unsurprisingly, the stock tumbled in the market panic prompted by the mini-budget on 23 September, given its exposure to rising gilt yields.
In the short term, an emergency £65bn bond-buying operation conducted by the Bank of England has calmed nerves. L&G was quick to reassure shareholders in an unscheduled trading statement last week, confirming it was not a forced seller of UK government bonds in the turmoil.
However, the central bank’s intervention ended on Friday. Further turbulence in the bonds market is a downside risk to L&G shares, particularly if financial stability concerns regarding pension funds worsen. Nonetheless, for me, the finances look healthy enough to allow the company to ride any volatility.
Our balance sheet and liquidity position remain strong, and our businesses are highly cash generative.
Sir Nigel Wilson, Legal & General Group CEO
L&G delivered an 8% increase in operating profit to £1.16bn for H1 2022. The firm also announced cumulative capital generation of £4.1bn. This means it’s currently on track to achieve its ambition of £8bn-£9bn by 2024.
With the group hiking its interim dividend 5% to 5.44p per share, I think now could be an excellent time for me to invest at a bargain price. The present economic climate is unpredictable, but I believe there’s a good chance L&G shares could rally if traders regain confidence in the UK’s fiscal direction. Right now, I don’t have spare capital to deploy, but if I did, I’d buy.
Vistry Group
FTSE 250 housebuilder Vistry Group (LSE: VTY) has also seen its share price plummet this year. The stock’s down 56%, causing the forward dividend yield to rocket to 12.13%.
The company faces significant headwinds. Rising mortgage rates and the growing likelihood of a housing market slump have harmed the Vistry share price. This pressure could intensify if the macroeconomic environment fails to improve.
However, the business is taking steps to bolster its position despite adverse market conditions. It recently announced a £1.2bn merger deal with rival Countryside Properties, which is expected to complete on 11 November. The new company will become the UK’s third-largest housebuilder.
Vistry expects the deal could lead to £50m in annual cost savings two years after completion. What’s more, the housebuilder anticipates adjusted pre-tax profit for 2022 will be around £417m and that this figure could potentially double to more than £800m post-merger.
Additionally, the company’s CEO and CFO recently snapped up £248,000 in stock. This suggests they see room for growth at current share price levels. Encouraged by insider buying and an exciting merger, if I had spare cash to invest, I’d suppress my concerns about a possible property price crash and open a small position today.
