A high dividend yield can be attractive – depending on whether the payout lasts. After all, no dividend is ever set in stone. So while a number of UK shares yield over 9%, they will not all stay that way. Vodafone, for example, with its 10.3% yield, has said it will halve its dividend per share.
But some shares yield over 9% and have been growing their dividends annually in recent years.
These are not minnows: like Vodafone, the two I discuss below are both members of the flagship FTSE 100 index of leading shares.
They have both also been growing their dividends annually in recent years. That is not guaranteed to continue, but I do take it as a sign of management confidence in the businesses.
M&G
The first of the pair is a share I have in my portfolio at the moment: asset manager M&G (LSE: MNG).
Since listing as a standalone company five years ago, I think the business has performed well. It has generated sizeable cash flows and raised its dividend annually in line with its policy of maintaining or growing the payout per share each year. On top of that, it bought back a large number of shares, meaning it has been able to pay a higher dividend per share without needing to put up the total cost at the same level.
Despite that, the share continues to feel somewhat unloved. It is down 5% in five years and the current yield is 9.2%.
That suits me fine as I am happy to hang onto it and hopefully keep earning sizeable dividends. Backing them up are strengths including a large end market, strong brand, and customer base stretching into the millions across a couple of dozen markets.
The underwhelming share price could be an indication that other investors are more concerned than I am about the risks here. Those include strong competition and the risk that any significant market downturn could lead to clients pulling funds, hurting profits. On balance, I think the 9.2% yield is a good reward for me given those risks.
Phoenix
The second share is one I do not own but that I think is worth investors considering from an income perspective: Phoenix (LSE: PHNX).
The insurer operates under a number of different brands and so its customer base of millions is large. In some ways this is a simple business: demand is large and fairly resilient, the necessary expertise acts as a barrier to entry and the large sums of money involved mean that even modest commissions or fees can soon add up. Phoenix benefits from its brands, large customer base, and economies of scale.
The company’s progressive dividend policy means it aims to keep raising its dividend per share annually as it has done for a few years already.
Will that happen? One risk I see is any serious property market correction eating into the value of Phoenix’s mortgage book. That could have a negative impact on profits.
But with a 9.3% yield, I like the income prospects of owning Phoenix and it is on my watch list.
