I’ve spent the majority of the last couple of years packing out my portfolio with dividend shares from the FTSE 100. It’s the main method I’m using to build wealth.
With meaty dividend yields, here are two shares that if I didn’t already own, I’d happily buy today.
HSBC
A global bank with Asian roots, HSBC (LSE: HSBA) is a big name in the sector. I most recently added to my position when the stock was trading at 658p. That lifted my average buy price to 620p, after initially buying some shares in February at 602p. Today, I’m sitting on an 8.6% paper gain.
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I was mostly drawn in by its impressive 7.2% yield. When accounting for the special dividend the bank’s set to pay this year after selling its Canadian unit, its payout climbs to 9.5%. That figure gives some of the FTSE 100’s highest payers a run for their money.
That shows management plans to keep rewarding loyal shareholders and, in my opinion, highlights how much HSBC’s an exceptional income stock. Last year, the business posted profits of $30.3bn, up 78.2% from 2022. It put the extra cash to good use, increasing its dividend by over 90% as well as buying back $7bn worth of shares.
That’s great but investing always comes with risks. The largest one I see with HSBC is its exposure to Asia. After years of mega growth, the Chinese economy’s hit the brakes. We’ve particularly seen issues with its property market, which HSBC’s invested in.
But its focus on the growing region is a double-edged sword. It may come with the side effect of some short-term volatility. However, in the long run, I expect its focus to pay off as personal wealth continues to grow and demand for banking services reflects this.
British American Tobacco
I talked of the FTSE 100’s highest payers above. One of the index’s heaviest hitters is British American Tobacco (LSE: BATS) with an 8.4% yield. Since opening a position in the stock last September, I’ve made a modest 4.6% paper gain.
But I’m more in it for the income. In its latest results, the business reiterated that it “understands the importance of cash returns to shareholders”. That’s why it recently announced it would buy back £700m worth of shares in 2024 and £900m in 2025.
While the business generates substantial free cash flow, which allows it to pay thumping dividends, there are threats I see. For example, smoking’s a habit coming under increased scrutiny.
We’ve seen a rising amount of legislation being imposed on the sector in recent times. That’s certainly something to keep an eye on.
But the stock looks like decent value, trading on around 13 times earnings. And to counteract the decline of smoking, the business continues to grow its New Categories division, which is home to brands such as Vuse.
Its Smokeless brands accounted for 17.9% of group revenues for the six months to 30 June, up 1.4% from the same period last year.
