When looking at different asset yields, I always use the Bank of England base rate as a reference point. From here, I can weigh up whether the added risk of buying something is worth it given the increase in yield that I’ll pick up. There are several FTSE 100 dividend stocks that I think are worth it. With yields being offered around 9%, I can afford to take on some higher risk given these eye-catching numbers.Â
Lighting up dividends
The first FTSE 100 dividend stock that falls in this category is Imperial Brands (LSE:IMB). The tobacco manufacturer is one of the largest in the world. It owns brands such as Rizla, Blu and Davidoff.
The share price is only up 5% over the past year, but at the same time hasn’t seen a huge amount of volatility. If I was hunting for a top growth stock then this might put me off. However, as an income investor, a steady share price is a good thing. It allows me to pick up dividends without having a large risk on my initial investment.
Currently, the dividend yield is 8.78%. In the full-year results that came out last week, a 1% increase in the dividend per share was announced at 139.08p. The results also showed a positive outlook for the FTSE 100 dividend stock. The company has a clear five-year plan to slim down and focus on five priority markets. This should help boost cash flow along the way, something already seen from the £281m gain on disposal of the Premium Cigar Division.
One risk is the continued exploration in Next Generation Products (NPG). Significant money is being invested here, but in the full year, the division lost £138m. I think the company needs to be more careful about throwing money at some of these projects.
A dividend stock in the finance sector
The second company I like is M&G (LSE:MNG). The investment manager has offered a generous dividend yield all year, with it rarely dropping below the 8% mark. Currently, the dividend yield is 9.47%. At the same time, the share price is flat over a one-year period.
The FTSE 100 dividend stock services a wide range of clients. It ranges from retail savers like me, to institutional pension providers and professional investors.Â
The half-year results back in August were pretty average, but the important metric for me was that assets under management continued to grow. They grew from £338bn last year to £370bn this year. Ultimately, if the business can retain and grow holdings, this will help to boost profitability as it makes money from fees based on the amounts held.
In terms of risks, M&G is exposed to financial markets. If we see another stock market crash, then investors will likely pull money out of funds and sit in cash. This would lower the assets under management and mean the business would see a hit to financial results.
Overall, I’m considering buying shares in both the FTSE 100 dividend stocks mentioned above.