3 tempting high-yielding passive income stocks I like — but are they shrewd buys?

This Fool takes a closer look at these passive income stocks. Is their high dividend yield sustainable and should she buy some shares?

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Three passive income stocks I like on the surface of things are Phoenix Group (LSE: PHNX), British American Tobacco (LSE: BATS), and M&G (LSE: MNG).

However, are these picks no-brainer buys for me with their index-beating yields or is there more to them than meets the eye?

Phoenix Group

Savings and retirement business Phoenix offers a mighty dividend yield of over 10%! A high yield can often represent a red flag. For example, the share price might be slumping badly, pushing up the yield. This isn’t necessarily the case for Phoenix.

An unexpected update on 1 February made for good reading. The business said it reached its target of £1.5bn of new business cash generation two years early.

From a bearish view, the business posted a H1 loss after tax of £245m. This was primarily due to losses from adverse market moves against investments it took out to hedge its capital position. A continued poor strategy is something that could hurt its investment case and returns moving forward.

The shares look cheap on a price-to-earnings ratio of just six. Plus, the yield looks well-covered for now, with a solid balance sheet supported by lots of new cash and positive performance against the backdrop of macroeconomic turbulence. I’d buy some shares when I next can.

British American Tobacco

The tobacco powerhouse has long been a Dividend Aristocrat. This is due to its high cash generation, and generous investor rewards policy. A yield of over 10% today is attractive.

The obvious risk for British American shares is the continued scrutiny of smoking and its ill-effects on health. Anti-smoking sentiment is increasing. For example, governments are looking to ban some vaping products, and even put a tax on those that it will allow. All these aspects could hurt its performance and returns in the longer term.

However, British American still seems to be performing well despite economic challenges. Its immense brand power and wide profile is helping here. Plus, the business is looking to capitalise on non-tobacco alternatives for those moving away from traditional smoking. This could help boost the coffers too.

The firm has raised its annual dividend for years, and for now, I don’t see that changing. I’d be willing to snap up some shares for juicy returns when I next can.


Asset manager M&G currently offers a yield of just under 9%.

The headline risk for me is continued economic volatility as consumers may pull out funds during times of turbulence, like now. This could have an impact on performance and returns.

However, H1 2023 results made for excellent reading, and signified the high level of cash generation and lucrative asset management the firm undertakes. It is on track to achieve operating capital generation of £2.5bn by the end of 2024, and inflows have increased for the third year in a row. This potential war chest of cash should support dividends for some time to come.

Furthermore, analysts reckon performance, and earnings per share, are only set to rise in the coming years. Although, I do understand forecasts don’t always come to fruition.

Like the other two stocks, I’d happily buy some M&G shares when I next have some investable cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. and M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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