Working for a living can be hard and is undeniably time-consuming. Thus, as an investor, one thing I enjoy is my ‘passive income’ — additional revenue that accrues with little effort from me. What’s more, these gains build up 24/7, even while I sleep. But with interest rates close to zero (or even negative on some assets nowadays), generating worthwhile income yields is tough. That’s why I’m a massive fan of the cash dividends paid by UK shares, especially those in the FTSE 100 index. Here are three FTSE 100 stocks I’d buy today for their market-beating dividends.
1. FTSE 100 share #1: BHP Group (mining)
Global miner BHP Group (LSE: BHP) is the world’s largest diversified mining group. The Anglo-Australian firm is a leading provider of iron ore, metallurgical coal and copper, plus oil, gas, and energy coal. Given the mess BHP makes, it’s hardly environmentally friendly, yet it provides materials vital for global growth. BHP uses its massive cash flows to reduce its net debt and pay chunky cash dividends to shareholders. At the current share price of 2,370p, it’s valued at £132.6bn, making it a FTSE 100 colossus. At this price, the stock offers a dividend yield of 4.9% a year. In addition, it often pays out special dividends on top of its regular cash outlays. These boost its forecast dividend yield closer to 9% a year, far in excess of the FTSE 100’s forecast 3.7% yield. However, I have to remember that dividends are not guaranteed and can cease at any time. I don’t own BHP, but I’d buy at these price levels.
2. Cheap share #2: Imperial Brands (tobacco)
My next FTSE 100 share is another company with environmental (and ethical) problems. My second stock is Imperial Brands (LSE: IMB), the world’s fourth-largest supplier of tobacco and cigarettes. Imperial is hardly a candidate for ESG (environmental, social and governance) funds. Yet it’s a firm favourite among income-seeking portfolio managers. I don’t own Imperial shares as yet. However, as a smoker, I see no reason why I can’t benefit from Imperial’s powerful cash flows. At the current share price of 1,561p, Imperial has a market value of £14.9bn. This FTSE 100 stock trades on a price-to-earnings ratio of 5.4 (among the FTSE 100’s lowest) and an earnings yield of 18.6%. Imperial shares offer a hefty dividend yield of 8.8% a year, among the very highest among blue-chip stocks. Despite its lethal products and high net debt, I’d welcome the extra income from owning Imperial stock.
3. Dividend share #3: Persimmon (housebuilding)
My final FTSE 100 company doesn’t make lethal products or pollute the planet. Instead, Persimmon (LSE: PSN) builds roofs to go over home-buyers’ heads. Founded in 1972 and based in York, Persimmon is one of the UK’s leading housebuilders. The current share price of 2,884p values this Footsie firm at £9.2bn. In its first-half trading update, the group unveiled revenues over 50% higher than in Covid-hit H1 last year. Also, this business has over £1.3bn in cash, giving it a strong balance sheet for future growth. At the current share price, Persimmon stock trades on a price-to-earnings ratio of 14.5 and an earnings yield of 6.9%. The dividend yield of 8.1% a year is also among the FTSE 100’s highest payouts. I don’t own Persimmon shares, plus I worry about a housing bubble caused by excessive exuberance. Even so, I would find it hard to turn down this generous passive income!
Cliffdarcy has no position in any of the shares mentioned. 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.