Last year, I went on a share buying spree, snapping up FTSE 100 dividend stocks I hoped would pay me a high and rising passive income over time. I decided it was a good time to buy them, as interest rates looked like they had peaked, and (I hoped) would start falling in 2024.
Two top dividend shares
My two favourites were insurer and asset manager Legal & General Group (LSE: LGEN) and wealth manager M&G (LSE: MNG). They were both cheap, trading at around seven times earnings, while offering supersized dividend yields of more than 8% a year.
At first, I seemed to have got my timing just right. Their share prices climbed almost 20% and I had the dividends to look forward to as well.
I expected both shares to make further progress this year, as interest rates fell and savings rates and bond yields followed. That would make high income stocks like these look even more attractive, relatively to cash and bonds.
However, interest rates haven’t fallen. They may not fall until August. Or possibly the autumn. Or even 2025. One thing has fallen though. My two favourite passive income stocks.
The Legal & General share price is down 8.08% over the last month and 7.35% over one year. It didn’t help that 2023 operating profits, published last month, remained broadly flat at £1.67bn. Markets had expected £1.75bn, but high interest rates hit its investment management business.
M&G’s down 15.21% over the month and 1.12% over 12 months. It actually produced a more upbeat set of results last month, with 2023 adjusted operating profit jumping 28% from £625m to £797m, beating forecasts. However, investors were disappointed with the dividend, which the board hiked just 0.1p to 19.7p.
My holdings in both stocks are roughly back where I started. That’s disappointing, especially with the FTSE 100 as a whole breaking new highs.
Those are huge yields
It’s not exactly the end of the world though. As with most shares I buy, I aim to hold these two for a minimum of five or 10 years, and hopefully a lot longer than that. I wouldn’t bank a quick profit anyway, even if I was lucky enough to make one. In fact, I hope to be drawing a second income from their dividends into retirement and beyond.
Also, I think both still have strong prospects. L&G has a huge opportunity in the global bulk annuities market. M&G has generated capital of £1.8bn in the last two years, and is aiming to lift that to £2.5bn by the end of 2024.
With luck, their shares will revive when interest rates do finally fall, although I’m not banking on a return to the days of near-zero rates. Both offer incredible income prospects, with trailing yields of 8.68% and 9.88% respectively. I will reinvest every penny back into their shares.
However, I won’t buy more. First, I have enough exposure. And second, they’re not as cheap as they were, with L&G trading at 31.68 times earnings, and M&G at 15.58 times. That passive income’s terrific, but now I’ll look elsewhere to bag some capital growth too.
