Around the world, stock markets are hitting all-time highs, breaking records in the US, Europe and Japan. Meanwhile, the UK’s FTSE 100 index is falling behind, slipping by 0.4% since end-2023.
The Footsie looks cheap
For at least a decade, the Footsie has lagged behind other major names, especially the US S&P 500. However, this leaves it looking remarkably undervalued, both in historical and geographical terms.
Today, the index trades on a lowly multiple of 10.4 times earnings, delivering an earnings yield of 9.6%. For the highly valued S&P 500, these figures are 23 and 4.3%, respectively.
Furthermore, the UK index offers a dividend yield of 4% a year, versus 1.4% from its American counterpart. Also, this payout is covered 2.4 times by trailing earnings, for a solid margin of safety.
Three FTSE stocks for delicious dividends
Since mid-2022, my wife and I have loaded up on FTSE 100 dividend shares. Why? Because investment theory suggests that — all else being equal — buying low-priced assets boosts my future returns.
For example, we own these three Footsie dividend dynamos for their ability to generate market-beating cash returns (sorted by highest to lowest dividend yield):
| Company | Sector | Market value | Share price | Dividend yield | One-year change* | Five-year change* |
| Vodafone Group | Telecoms | £17.9bn | 66.25p | 11.6% | -33.1% | -53.3% |
| Phoenix Group Holdings | Asset management | £5.1bn | 504p | 10.3% | -19.1% | -28.0% |
| M&G | Asset management | £5.3bn | 224.6p | 8.9% | +13.7% | N/A |
Across these three ‘dividend dukes’, cash yields range from almost 9% to over 11.5% a year. The average dividend yield across all three is a handsome 10.3% a year — almost 2.6 times that of the FTSE 100.
However, future dividends are not guaranteed, so they can be cut or cancelled without warning. Indeed, this happened across scores of companies during 2020-21’s Covid-19 crisis.
Also, history has taught me that double-digit dividend yields rarely last. Either companies cut their payouts, or share prices rebound, both of which drive down yields.
I like M&G
While some high yields may become unsustainable, I like the look of the near-9% yearly cash on offer from M&G (LSE: MNG) shares.
Founded in 1931, this asset manager listed in London at 220p a share in October 2019. Since then, its shares are up just 2.1%. However, this return excludes its dividends — higher every year since 2019, even during 2020.
My wife and I bought into M&G in August 2023 for 199.6p a share. To date, we have made a capital gain on paper of 12.5%. Then again, I consider this merely a bonus.
For me, the attraction of being an M&G shareholder lies in its future stream of dividends. Currently, we reinvest this cash into buying yet more shares. But when we retire, M&G will help to fund our senior years.
Of course, as a leading UK asset manager, M&G’s fate is closely tied to financial markets. Thus, when share and bond prices plunge — as they did in spring 2020 — its revenues, earnings and cash flow can tumble.
Even so, as long-term M&G shareholders, we aim to sit tight during short-term volatility. With luck, our reward will be delicious dividends for many years to come!
