Stocks that have a high dividend yield can be useful to me in several ways. At a basic level, I get more passive income from these dividend shares than others in the index. Further, with high inflation and rising living costs, it makes my money work harder to generate a positive return. With these thoughts in mind, here are two FTSE 100 dividend payers with high yields that I’m thinking of buying.
A high-yielding dividend share
The first dividend share in question in M&G (LSE:MNG). The financial services business provides asset management and savings products to a range of customers. It services both private clients and more traditional pension funds.
The share price is up almost 1% over the last year, but it’s the dividend yield of 8.48% that catches my attention. The high yield isn’t just a flash in the pan, in fact for the past year the yield has averaged around 8%.
The main factor that contributes to this generous yield is strong capital generation from operations. The 2021 report showed growth by 0.8% of assets under management to £370bn. The higher the assets held, the higher the fees that can be generated from looking after the funds.
Even with operating profit down slightly versus last year, the management team has increased the target for operating capital generation of £2.5bn over the next three years. With this trajectory, I think that the dividend payments in future are safe if these targets are met.
One point that’s worth flagging up though is that assets under management are sensitive to the performance of the economy. If we see a stock market crash, or the cost of living continues to move higher, some clients may be forced to take money out and sit on cash for security. This could dampen future sentiment around this dividend share.
Puffing away
The second FTSE 100 stock I like is Imperial Brands (LSE:IMB). The share price has done well over the past year, gaining 11.5%. The dividend yield currently sits at 8.33%.
The company owns a range of brands in the sector including Davidoff and Rizla. It’s also growing the next-generation products division. This involves brands like Blu, a vaping e-cigarette brand.
Some might not feel comfortable getting involved in this dividend share due to the sector it operates in. I accept this, and it could be a factor that stunts share price growth long term as investors’ ethical concerns grow.
From a business perspective, the company is performing well. In the trading update released yesterday, the company spoke of “growth in aggregate market share in top-five priority markets”. Importantly, it also mentioned that operating cash conversion is on track as per full-year expectations. This should help to ensure that dividend payments for 2022 are going to be paid.
Both dividend shares offer me a high yield at the moment, and I’m considering adding them to my portfolio.