Buying a selection of the highest-yielding FTSE 100 shares could generate huge amounts of passive income. With this in mind, here are three examples that I think investors should consider.
Big payer
Insurance giant Aviva (LSE: AV) hit the headlines recently after launching a £3.6bn takeover of peer Direct Line. But it’s the company’s income credentials that really catch the eye.
Using analyst estimates for FY25 (beginning in January) and the current share price, the £13bn cap boasts a monster 8% dividend yield.
Is this too good to be true? Not necessarily. As an investment, the company has been outperforming rivals this year. Sales and profits have been rising as well, supporting CEO Amanda Blanc’s strategy of continuing to streamline the business.
Notwithstanding this, Aviva has a rather erratic history when it comes to returning cash. Several years of consistent hikes have been cancelled out by big cuts, usually during times of general economic malaise. Speaking of which, there’s a chance things in the UK could sour when new tax hikes land in April.
But this risk is precisely why I think it makes sense to own a bunch of stocks if the goal is to receive more income than a bog-standard index tracker. So, let’s add two other big-yielders to the mix.
Buying opportunity?
After doing rather well for much of 2024, Taylor Wimpey‘s (LSE: TW) share price looks set to end the year below where it started.
The rout since October is mostly down to the recent bounce in inflation, pushing Bank of England Governor Andrew Bailey to ponder slowing the rate of interest rate cuts going forward. Such a development was never going to be good news for our already-battered housebuilders.
On a more positive note, there’s still an enticing income stream to compensate Taylor Wimpey’s investors. An estimated 9.62p per share will be sent out to owners in FY25. Using today’s share price, that becomes a stonking yield of 7.7%.
That distribution could be cut if earnings fall back. Profit is barely expected to cover next year’s total payout as it stands.
Nevertheless, the chronic undersupply of housing in the UK suggests to me that a reduction — if one even comes — will prove no more than a blip.
As things stand, this could be a good buying opportunity.
Smoking hot!
British American Tobacco (LSE: BATS) completes this trio of high-yielding, top-tier shares. It’s also the best performer by some margin in 2024, gaining nearly 30%.
At least some of this has been in response to positive updates on trading. A few days ago, the £66bn cap said that revenue growth in its new product category (including vapes and oral nicotine) had been stronger in H2, helped by more investment in the US.
But another attraction has surely been the dividends on offer. Looking ahead, the highly cash-generative firm’s shares are expected to yield an mouth-watering 8.2% in FY25. Assuming equal investments in each of the companies I’ve touched on, this would bring the average yield to 8% – more than double that of the FTSE 100 index!
Dwindling sales of cigarettes could impact that juicy dividend flow in time. But I reckon we’re still a long way from that happening.
