Wealth manager M&G (LSE: MNG) and insurance conglomerate Phoenix Group Holdings (LSE: PHNX) are my two fave FTSE 100 dividend income stocks. After today’s stock market downturn, I like them even more.
A quick glance at either company will reveal why I’m a fan: both offer mind-boggling levels of income.
M&G yields 10.22% a year and Phoenix offers an even more generous passive income of 10.31%. On the FTSE 100, only Vodafone Group offers a higher yield, but that’s not going to last. The telecoms giant will halve shareholder payouts in March 2025.
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Why I like M&G
Yields are calculated by dividing the dividend per share by the share price. So when shares fall, as they’re doing right now, the yield rises. It’s simple maths.
This also points to a problem. M&G and Phoenix pay so much income because their shares have done so poorly.
Over one year, the M&G share price is up just 3.58%. That trails the FTSE 100 as a whole, which rose 5.12%. Phoenix did worse, falling 0.75%. This isn’t a one-off dip. Over three years, they’re down 13.25% and 22.73%, respectively.
UK financial stocks have been out of favour for some time now. That’s partly due to high interest rates. Investors can get 5% a year from cash or bonds, with no risk. While M&G and Phoenix offer far more income, capital is at risk as with any stock.
That doesn’t worry me personally. I buy shares like these with a long-term view. I expect both companies to thrive over time, giving me far more income and growth than any savings account or government bond. Albeit with a lot more volatility along the way.
The first major question is whether their dividends can survive. Once a yield tops 10%, it’s in the danger zone. Just ask Vodafone investors. However, I’m betting that these two will.
Phoenix Group may also fly
The M&G board has clearly stated its policy of “delivering stable or growing dividends to our shareholders”. I think the dividend is likely to remain stable, but growth may be in short supply. The board increased the dividend per share by just 0.1p to 19.7p in 2023. Markets didn’t like that and the share price has taken the brunt of their displeasure. Given the massive yield, I’m in a more forgiving mood.
Phoenix has a solid dividend track of late, increasing shareholder payouts in seven of the last nine years. In the other two years, it froze them. One of those years was the pandemic, so that’s pretty forgiveable. Let’s see what the chart says.
Chart by TradingView
Dividend growth may slow but I won’t be crying in my pillow if it does. What I don’t want to see is a dividend cut. That would probably torpedo their share prices, too. I don’t think we’ll get one but who knows?
It brightens my day up every time their dividends hit my self-invested personal pension (SIPP). If I can find any cash, I’ll take advantage of the market tantrum and buy more of both.
