Finding high-yield dividend stocks that can provide inflation-busting passive income payouts is no mean feat these days. The UK’s CPI rate of inflation remained unchanged at 6.7% in September — that’s well above the Bank of England’s 2% target. By contrast, the average yield across the FTSE 100 index is considerably lower at just 3.9%.
For retirees living off their SIPPs (Self-Invested Personal Pensions) the rising cost-of-living is a pressing concern. With that in mind, here are two FTSE 100 shares currently offering eye-catching dividend yields over 8% that investors may wish to consider buying for their SIPPs.
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Aviva
Aviva (LSE:AV.) is the UK’s largest multi-line insurer. The shares currently offer a mighty dividend yield a touch above 8%.
With a geographical footprint spanning the UK, Ireland and Canada, Aviva offers insurance, wealth, and retirement solutions to its customers. Cost efficiency, a robust capital position and a £300m share buyback programme all characterise the insurer’s recent trading history. Indeed, the firm is on track to deliver its £750m cost reduction a year early.
To add to the encouraging outlook, a 5%-7% increase in operating profit is anticipated this year. What’s more, the shareholder distributions look secure, with the most recent interim dividend rising 8% to 11.1p per share. Aviva’s forward dividend cover stands at an estimated 1.9 times forward earnings.
Ultimately, this is all underpinned by a healthy capital position, evidenced by the solvency II ratio of 202%. Impressive stuff.
Although I think Aviva shares would warrant a place in my contemplated retirement portfolio, investors should note it faces several risks. The share price has fallen 30% over five years, so the company has a history of disappointing long-term shareholders. In addition, higher claims and costs in the UK and Ireland could weigh on future returns.
British American Tobacco
British American Tobacco (LSE:BATS) is a global tobacco company with a mammoth dividend yield approaching 9.4%.
The Lucky Strike maker currently trades near a five-year low, which has pushed the dividend yield up to the top of the FTSE 100 passive income league table. But forward dividend cover of 1.7 times earnings suggests the bumper payouts are sustainable.
Plus, adjusted diluted earnings per share (EPS) are expected to rise from 371.4p last year to 392p by FY24, suggesting a potential value investment opportunity. A very reasonable price-to-earnings (P/E) ratio of just 6.5 confirms this.
Cigarettes remain the lifeblood of the business, with combustibles still making up 83% of the group’s revenue. But continued investment in its ‘New Category’ division of alternative nicotine products bodes well for the future. Its flagship Vuse brand leads the global vapour market, with a full-year value share of 35.9% in 2022.
I already own British American Tobacco shares, but I’m acutely aware of the significant challenges confronting the sector. Falling global cigarette consumption and smoking bans for future generations in the UK and New Zealand add credence to the argument that big tobacco is a sunset industry. Investors should note the drag on future share price growth that a shrinking customer base potentially poses.
That said, despite the risks, I think these two high-yield dividend stocks look like good options for investors to consider for a SIPP that aims to beat inflation.
