This is a good time to earn dividends from FTSE 100 stocks. The pandemic continues to subside and recovery is happening, even if slowly. FTSE 100 companies have increasingly become optimistic about the future, in many cases because of their own improved performances. And this is leading them to increase their dividends. Some stocks’ dividend yields have risen to double digits. And there are plenty of others that have above-average yields as well.
Can M&G sustain its high dividend yield?
Here, I take a look at two such FTSE 100 stocks, that offer huge 9%+ dividend yields. The idea is to consider their individual merits carefully to decide whether their dividends are dependably high. The first of these is the investment manager M&G (LSE: MNG), which has a dividend yield of 9.3%.
The challenge with the stock is lack of visibility on whether its dividends can be sustained. The company was part of Prudential, another FTSE 100 company until very recently. That means M&G has no past history to fall back on. To get some idea, I looked at Prudential’s yields. Turns out, it is not a big one for dividends. At present its yield is at a low 0.8%. In fact, yield has not been the highlight for the stock in at least the past decade.
M&G could have different plans, though. So I decided to look at other indicators as well. First things first, the company needs to be profitable. Otherwise, it would not be wise to pay dividends. There is a problem here too. While it has been profitable on an annual basis in the past few years, it fell into a loss for the half year ending 30 June 2021.
It does explain that this headline loss was on account of fluctuations in the value of its assets. And it has, in fact, turned a net profit on an adjusted basis. It is also optimistic in its outlook. I would want to wait for its next set of results, however, before making a call on it.
Imperial Brand’s long-term outlook unclear
The next FTSE 100 stock is the tobacco biggie Imperial Brands (LSE: IMB), which has a yield 9%. The owner of brands like Davidoff cigarettes faces an uncertain future for its tobacco products. At the same time, its next generation products like vapes, have not really taken off so far. And even if they did, they also risk the possibility of being deemed hazardous to health. This could be a reason why its share price was falling before the pandemic.
It is still not back to its pre-pandemic levels. But I reckon it could, considering that its profits are growing. For the six months ending 31 March, the company’s adjusted operating profits grew by a decent 8.1% from the year before. And it is for these reasons that I bought the Imperial Brands stock some time ago.
However, now there are plenty of FTSE 100 stocks with rising prices and high dividend yields around. So, it has lost some of its appeal for me. I would think twice before buying it again.