Dividend yields of nearly 10%! I’d buy both these bargain FTSE 100 shares

Our writer highlights a pair of income shares from the flagship FTSE 100 index that each yield nearly 10% and that he’d happily buy now.

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The sorts of large blue-chip companies that dominate the flagship FTSE 100 index of leading shares do not typically come with nearly double-digit percentage dividend yields.

Some do, however.

Here are a couple of such shares I would consider adding to my portfolio now if I had spare cash to invest.

Phoenix

The company behind financial services providers such as Standard Life, Phoenix (LSE: PHNX) is a FTSE 100 member yet remains a little-known name to some investors.

I think there is a lot to like here, though.

The company is well-established with a large customer base and strong position in an industry likely to see ongoing high levels of demand. Last year it generated over £2bn in cash. Yet its market capitalisation is £5.3bn, which looks cheap to me.

9.8% dividend yield

The company has rewarded shareholders with annual per-share dividend increases for years. This month it set out a policy of aiming to raise the dividend each year. As with any firm, such dividends are never guaranteed. Still, the track record here is impressive and the yield is currently 9.8%.

Share price performance, however, has not been very impressive. Phoenix shares have fallen 21% in the past five years.

I think that partly reflects concerns about the risks of the large pool of assets held by investment managers like Phoenix. Shifting values can lead to unflattering income statements.

Last year, for example, Phoenix reported an £88m loss after tax despite the sizeable cash generation I mentioned above.

That is a paper loss, though. There is a risk that weaker markets could lead to investors pulling out funds, hurting Phoenix’s cash flows. But from an income perspective I would still be happy to add this FTSE 100 share to my ISA if I had spare money to invest.

British American Tobacco

I already own shares in British American Tobacco (LSE: BATS). After an 18% price fall in the past year, however, I would happily buy more. Its price-to-earnings ratio of six looks like a bargain to me.

That fall partly reflects the company writing down the long-term value of some of its brands to zero. As fewer people smoke, both revenues and profits could themselves go up in smoke.

Without underplaying that risk, though, I continue to see strengths in the FTSE 100 company. It has already been dealing with weakening demand in many markets for decades and one tool it has is the pricing power enabled by its portfolio of premium brands.

Moving further into product lines like vapes could help squeeze more value out of well-established brands. The company has long expertise in managing supply chains and routes to market that I think could help it move beyond its existing cigarette focus.

Decades of dividend growth

British American is what is known as a Dividend Aristocrat, having lifted its annual payout for decades.

Like Phoenix, it plans to keep raising the dividend per share annually – time will tell whether that happens. With a yield of 9.9%, I like the passive income streams it offers me.

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.

C Ruane has positions in British American Tobacco P.l.c. The Motley Fool UK has recommended British American Tobacco P.l.c. 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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