I’ve been investing since 1986-87, so I’ve made my money work harder for 37+ years. Over this period, I’ve grown to love my dividends — the cash payouts given to shareholders by companies. And my favourite place to find these rivers of cash is in the FTSE 100.
Delicious dividends
Investing great John C ‘Jack’ Bogle once remarked: “The market is often stupid, but you can’t focus on that. Focus on the underlying value of dividends and earnings.”
In its simplest sense, that’s what my investing strategy does: increase my dividends (and capital gains) over time. And when I come to retire, I hope to have enough diversified, passive income to keep me comfortable in my senior years.
Of course, future dividends are not guaranteed, so they can be cut or cancelled with little notice. Also, most London-listed companies don’t pay out dividends. However, as I said earlier, the blue-chip Footsie index is a great source of dividends.
Three dividend dynamos
Currently, the FTSE 100 offers a dividend yield of around 4% a year. But these three Footsie firms easily beat this yield by wide margins (my table is sorted from highest to lowest dividend yield):
| Company | Business | Market value | Share price | Dividend yield | One-year change* | Five-year change* |
| Vodafone Group | Telecoms | £18.1bn | 66.73p | 11.6% | -27.8% | -53.7% |
| Phoenix Group Holdings | Asset management | £4.9bn | 485p | 10.7% | -13.4% | -26.7% |
| British American Tobacco | Tobacco | £53.9bn | 2,417p | 9.6% | -18.5% | -21.7% |
These companies range in size from almost £5bn to nearly £54bn and compete in very different business sectors. But what they do have in common is all three stocks offer market-thrashing cash yields.
These range from almost 10% a year from the UK’s largest tobacco firm to almost 12% a year from a well-known telecoms group. Across all three stocks, the average yearly dividend yield is 10.6% — versus that 4% from the wider FTSE 100.
Downsides to dividend investing
Time for me to point out out three pitfalls with investing in high-yielding stocks.
First, the above dividend yields are trailing figures, so they reflect the past and not the future. Indeed, Vodafone has just announced that it is set to halve its dividend next year to €0.045 from €0.09 per share. Thus, its forward yield dives to 5.3% a year for 2025.
Second, companies that pay out large proportions of their profits in dividends sometimes fail to invest enough in future growth. My table reveals that all three stocks have seen their share prices tumble over one and five years — a sign of possible stagnation?
Third, all three companies carry substantial amounts of net debt, putting pressure on their balance sheets. For example, Vodafone Group has net debt of €33.4bn (£28.5bn) to service.
Despite these concerns, I continue to be a fan of dividend investing. Indeed, my wife and I own two of the three shares shown above (but not the tobacco stock, which my wife refuses to own).
In summary, I hope to enjoy rising payouts from these and other dividend dynamos. That said, I won’t hesitate to ditch even the highest-yielding stocks when their outlook turns grim!
