FTSE 100 dividend stocks pay some of the most attractive yields in the world. I believe their passive income stream offers investors one of the best ways of protecting their portfolio from skyrocketing inflation.
Inflation has just hit a 30-year high of 6.2%, and the Bank of England has warned it could top 8% this year. This is hitting our spending power and our savings. Today’s best-buy, easy-access account from Cynergy Bank only pays 0.84%. That’s why FTSE 100 dividend stocks are my go-to investment today.
Right now, the index as a whole yields 3.52%, which is pretty good. However, I’d like a higher return as inflation lets rip, and I’d start by investing in what I think is a top FTSE 100 dividend stock, Phoenix Group Holdings (LSE: PHNX).
I’d buy top FTSE 100 dividend stocks today
Phoenix buys up legacy life insurance and pension funds that are closed to new business, and manages them on behalf of members. It now services 14m policyholders and has been acquiring businesses too. It now owns Standard Life, ReAssure and SwissRe.
It is not a whizzy growth vehicle. The Phoenix share price trades 10% lower than five years ago. But the stock is a FTSE 100 dividend machine. Earlier this month, it increased its dividend by 3%, after cash generation exceeded expectations. It offers a forecast yield of 7.8%, covered 1.5 times by earnings. That should help me combat the inflation threat.
While I see Phoenix as a solid long-term buy-and-hold, no stock is without risks. Management has to rely on buying up more legacy funds or making acquisitions to keep this stock (and its dividends) rolling along. If it runs out of targets, shareholder payouts could take a hit. However, a low forecast valuation of just 7.7 times earnings makes this a risk I’m willing to accept.
I would match this by investing in another top FTSE 100 dividend stock, fund manager M&G (LSE: MNG). It was spun off from Prudential in 2019 and, in contrast to Phoenix, the M&G share price has shot up 95% in just two years. It was never going to maintain that breakneck growth, but it has held steady during this turbulent year.
I’d buy this inflation-busting stock too
Again, I wouldn’t buy M&G for growth. I’d buy it because I think it can establish itself as a top dividend stock for the long term. Today, it yields an incredible 8.5%, one of the highest dividends on the index.
M&G has challenges. Pre-tax profits dipped by £67m to £721m in the year to December, partly due to changing longevity assumptions. Management has been scrambling to cut costs, to maintain the bottom line and keep investors happy. Yet there is good news too. Dividends are not the only reward from investing in this FTSE 100 stock.
Earlier this month, management announced a £500m share buyback after generating £2.8bn of capital over two years. That comfortably surpassed its £2.2bn target. It hopes to generate another £2.5bn capital generation by the end of 2024. That could trigger another buyback. Fingers crossed.
M&G has a strong capital position too. I’m hoping this FTSE 100 stock can give me inflation-busting dividends for years to come.