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The 3 highest-paying FTSE 100 dividend shares and what I’d buy

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The three highest-paying FTSE 100 dividend shares currently offer investors yields of between 9% and 8.6%. By comparison, the FTSE 100 supports an average dividend yield of around 4%. 

Investors have been selling these three companies over the past 12 months, mainly due to concerns about their growth potential. However, I think this could be an excellent opportunity for long-term investors to snap up these income champions at a discount price. 

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FTSE 100 dividend shares

With a dividend yield of 9%, the first company on the list is tobacco producer Imperial Brands (LSE: IMB). Ethical considerations aside, this organisation has struggled in recent years. Its pivot away from cigarettes towards reduced-risk products has floundered, and profits have stagnated. 

Nevertheless, the company’s distribution to investors remains well covered. The group is also highly cash generative. Its operations provide plenty of capital to both sustain its current dividend and pay down debt.

That said, I’m worried about Imperial’s long-term growth potential. Cigarettes are ever-so-slowly becoming history, and while the company has been able to manage the decline up until this point, I think it will become harder over the next decade. 

As such, I’m not in a rush to buy this FTSE 100 dividend share, despite its market-leading dividend yield.

Asset management 

The second-highest dividend yield in the FTSE 100 belongs to asset management group M&G (LSE: MNG). The stock currently supports a dividend yield of 8.9%, more than double the market average and only 0.1% below that of Imperial. 

As an asset management group, M&G’s fortunes are linked to the performance of global stock markets. Unfortunately, I think this means the company will see a decline in income for 2020, and it may also report another slide in 2021.

Still, as one of the largest asset management groups in the UK, the company has a strong competitive advantage and should continue to draw customers to its offer.

Management has said it’s committed to the current dividend, which is positive. But if profits continue to fall, it may have no choice but to cut the distribution. 

With that being the case, I’m not in a rush to buy M&G for a portfolio of dividend shares. Like Imperial, I’m worried about the group’s outlook and ability to sustain its payout in the long term. 

Dividend champion 

The final company on my list of FTSE 100 dividend shares, with a yield of 8.6% at the time of writing, is homebuilder Persimmon (LSE: PSN). I’m incredibly optimistic about this group’s prospects.

The structural housing shortage in the UK should ensure the demand for new property remains high. I think that’s positive for Persimmon’s outlook.

What’s more, the combination of ultra-low interest rates, the government’s Help to Buy scheme, and stamp duty changes suggest activity in the housing market will remain elevated for the next few years. 

Since the financial crisis, Persimmon has been committed to returning any extra cash generated from operations to investors. That means it’s returned around 50% of its market capitalisation through dividends.

And I don’t think this is going to change. The group has a strong balance sheet and fat profit margins. That’s without taking into account the tailwinds highlighted above. 

Therefore, I’m confident that Persimmon is one of the best FTSE 100 dividend shares to buy right now. 

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Rupert Hargreaves owns shares in Imperial Brands and M&G Plc. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.