Earlier today, I was searching for UK shares that pay bumper dividends to patient investors. My latest filter revealed 10 FTSE 100 stocks whose cash yields exceed 8% a year.
These 10 high-yielding Footsie shares include four insurers/asset managers, two tobacco firms, plus one company in each of the banking, mining, housebuilding, and telecoms sectors. In other words, financial firms account for half of these dividend dynamos. But which shares stand out among the rest?
UK shares for big dividends
As a value investor, my family portfolio is weighted towards cheap, undervalued, and unloved dividend stocks. Here are two London-listed stocks that my wife and I own for powerful passive income.
Income share #1: Glencore
Glencore (LSE: GLEN) is a major player in the mining and commodity-trading markets. At the current share price of 463.7p, this group is valued at £57.3bn, making it a FTSE 100 powerhouse.
We bought Glencore stock in August for 435.1p a share. To date, we have an early paper profit of 6.2%, but we bought these shares purely for dividend generation.
Over one year, this stock is down 4.8% but up more than half (+50.4%) over five years. What’s more, both these figures exclude cash dividends, which are generous from Glencore and other mega-miners.
Trading on a multiple of 7.4 times earnings, this stock has an earnings yield of 13.5%. This means that its market-beating dividend yield of 7.5% a year is covered 1.8 times by historic earnings.
Now for the bad news. Future dividends are not guaranteed and can be cut or cancelled in tough times. And miners’ earnings are usually volatile, driven by boom-bust cycles in commodity prices. Indeed, Glencore cut its cash payouts in 2015, 2016, and 2020.
Despite the erratic nature of its earnings, I see Glencore’s stock as a long-term hold as a ‘dividend duke’. But I fully expect a bumpy ride as a shareholder in the years ahead…
Dividend stock #2: Vodafone
After we added Vodafone Group (LSE: VOD) to our portfolio in December 2022, the share price rose nicely until late February. It has since bombed, making it one of the Footsie’s worst performers in 2023.
For the record, we paid 89.4p a share for our holding, but the price stands at 77.98p as I write. Thus, we are down 12.8% since our purchase, which is hardly ideal.
Over one year, Vodafone stock has dropped by 22%, plus it has lost nearly half of its value (-48.9%) over five years. Yet I hope to see this global telecoms giant’s fortunes rebound and recover, while it continues to pay out fat dividends.
Vodafone’s big problem is that growth in its revenues, earnings, and cash flow has been weak for years. As a result, it now carries €33.4bn of net debt on its balance sheet. That said, this is down almost a fifth (-19.7%) from €41.6bn a year earlier.
Also, the falling share price has pushed Vodafone’s dividend yield into double digits (10% a year). Experience tells me that one of two things tends to happen to such high-yielding UK shares. Either the price goes up, or the dividend is cut and the cash yield (and share price) goes down. With Vodafone, I sincerely hope it will be the former, rather than the latter!
