When buying shares, I never look at the dividend yield in isolation. I am looking to buy shares in great companies at attractive prices. But if they have a chunky dividend to boot, all the better.
Here are three shares I think investors should consider buying, each offering a yield of 7% or higher.
M&G
Asset manager M&G (LSE: MNG) has consistently been among the highest-yielding shares in the FTSE 100 index in recent years.
Yet the company has continued to deliver the goods, raising its dividend per share annually. That is in line with its stated aim of maintaining or growing the dividend per share each year.
At the moment, the dividend yield is 9.7%. That is very attractive to me and I have no plans to sell my M&G shares.
The business could see customer demand falling if there is a significant stock market correction, potentially hurting sales revenues and profits. But despite that risk, I see the current share price as attractive for a business that benefits from a strong brand name, large customer base and proven business model.
British American Tobacco
There are two large tobacco companies listed on the London market. British American Tobacco (LSE: BATS) and Imperial Brands yield 8.7% and 6.7%, respectively.
In other words, both yield over 6%, well ahead of the FTSE 100 average. But of the two, I hold only one — British American Tobacco.
Its much higher yield is attractive to me, as is its history of raising its dividend per share annually for decades. Imperial made a cut in 2020. But dividends are never guaranteed and, in a world where cigarette use is declining in most markets, both companies face risks. I feel British American’s particular efforts to build a non-tobacco business set it up well for this world.
Over time, compared to the more-cigarette-focused Imperial, I think that could help it keep generating sizeable cash flows. Its stable of premium tobacco brands and well-developed global distribution network ought to help.
Aviva
Another FTSE 100 share I think investors ought to consider buying is 7.1%-yielding Aviva (LSE: AV).
Like Imperial, it has cut its dividend per share over the past few years. That is another useful reminder that dividends are never guaranteed. But alongside a reorganisation of the business to focus more on its core UK market, I think it shows the company exercising a strategic financial discipline that hopefully sets it up well for future.
Aviva has centuries of underwriting experience. Combined with its strong brands and large customer base, that helps the business make money.
Insurance is a potentially lucrative market and I see a risk that price competition in the UK in coming years could eat into Aviva’s profitability. But I think it is a well-run business with real strengths and a strong dividend yield into the bargain.
