2025 was a brilliant year for high income dividend shares. I know because I own the three biggest yielders on the entire FTSE 100, and they smashed it! Can they do it again in 2026?
Top FTSE 100 income stocks
My three big winners all sit in the financial sector: insurer and asset manager Legal & General Group (LSE: LGEN), wealth manager M&G (LSE: MNG), and insurer Phoenix Group Holdings (LSE: PHNX). I’ve written about them a lot lately, but it’s hard not to. Three years ago, I took a chance by pumping a large chunk of my Self-Invested Personal Pension (SIPP) into these financials, and it’s paid off beyond expectations.
At the time, all three looked unloved, trading on price-to-earnings (P/E) ratios of around six or seven. Their share prices had drifted sideways for years, while investors chased US tech mega-caps ever higher.
I worried they might turn out to be value traps. I also had to resist the pull of their ultra-high dividend yields. At various points, all three were paying more than 10% a year.
As every investor knows, high yields can be a warning sign. Yields rise when share prices fall, which suggests something’s going wrong. Companies also need to generate bags of cash to fund them. If the dividend’s cut, income investors head for the exits and the share price takes a beating.
But I did my homework and concluded the payouts looked reasonably secure. Legal & General, M&G and Phoenix all had solid track records of maintaining or growing dividends and strong Solvency II ratios, signalling capital strength. So I filled my boots.
The dividends have held firm and the shares have soared. M&G’s the standout, with its share price up a stunning 53% over the past year. Phoenix wasn’t far behind, rising 51%. Add in the income and I’m looking at a one-year total return of around 60%.
More divisification required
Legal & General has lagged, with share price growth of 19.4%, but that’s still pretty decent, plus I got a trailing yield of 8%. Now I’m hoping its shares can play catch-up.
Despite its strong run, M&G doesn’t look stretched, trading on a P/E of just 12.2. Legal & General’s pricier at 15.6. Phoenix looks a bit expensive today, its P/E creeping up to 22.7.
At some point, I’m expecting their shares to slow. These are income stocks, not growth monsters. Still, all three have benefited from renewed interest in UK blue-chips. And if interest rates continue to fall, hitting yields on cash and bonds, more investors could swoop.
Their yields aren’t quite as eye-watering as they were, thanks to rising share prices. Even so, M&G’s forecast to yield 7.18% in 2026, Phoenix around 7.7%, and Legal & General an impressive 8.33%.
Dividends are never guaranteed. All three boards are signalling modest dividend growth of 2% a year in future. However, M&G, Legal & General and Phoenix would all suffer in a stock market crash. They also face fierce competition for new sources of revenues, such as pension risk transfers.
Even so, I still think they offer a rare chance to consider locking in to high income for the long term. If we do get another year of steady gains, those once-in-a-decade yields may be gone for good.
