Investors seem to be mostly split into two camps. Some seek stocks with capital growth potential, while others prefer income stocks.
It’s the latter for me, and it’s why I care so much about FTSE 100 dividend yields. With a 5% yield, shares could pay for themsleves in 20 years in cash. Even more so if I buy more with my dividends each year.
And I’d still own the shares, with any growth thrown in. Can’t be bad.
Today’s big yields
After a year with so many scares and panics, a lot of share prices are down. And that means there are some very high yields from some Footsie shares. The following table shows the five biggest I can find, at the time of writing.
Different sources show different values and things can change quickly, so the picture might be a bit different by the time you read this.
| Stock | Recent price | Yield | Yield +1 | Yield +2 |
|---|---|---|---|---|
| Vodafone | 68p | 11.7% | 9.8% | 10.0% |
| British American Tobacco | 2,338p | 10.0% | 10.2% | 10.8% |
| Phoenix Group Holdings | 530p | 9.9% | 10.2% | 10.5% |
| M&G | 220p | 9.1% | 9.3% | 9.6% |
| Imperial Brands | 1,810p | 8.1% | 8.6% | 8.8% |
A nice portfolio?
The first thing that strikes me is that that might be close to a decent portfolio, with some reasonable diversification.
I don’t think I’d want two tobacco stocks though, so I’d swap out Imperial Brands for something else.
The next highest yields are banks and other financials. And with one insurer and an investment manager already in the list, I might skip over those.
That would take me to housebuilder Taylor Wimpey, with yields for this year and the next two years at 6.6%, 6.5% and 6.6%.
New ISA
In particular, if I was opening my first Stocks and Shares ISA in 2024, I really might be tempted to go for this lot.
Diversification is especially important starting out. There are few things that can put off a new investor worse than early losses, namely the thought of having to do lots of hard research to find a balanced portfolio.
And while I think of it, I reckon investment trusts can be a great way to start an ISA, as they provide diversification in a single buy.
My reality
As it is, with my stock market experience, I’d be a bit more picky. I’d narrow things down by looking at dividend cover, debt, and at how stock prices have gone.
The only one I’d really throw out based on that is Vodafone, which fails on all three. And I might just add a bank, as I don’t mind a bit of financial sector risk.
But even though I won’t actually buy all five of these right now, I’ll definitely keep my eye on them.
I’d like to revisit this next year, check how they did, and see what the biggest yields are then.
