With inflation increasing sharply this year, passive income from dividend shares could come in even more handy than usual. Here are two shares in my portfolio that currently offer annual dividend yields of more than 8%.
M&G
Asset manager M&G (LSE: MNG) announced its interim results this week and they were a mixed bag. But there was a fair bit of good news, including a net inflow of client funds over the past six months. On top of that, the firm announced an increase in its interim dividend.
The rise was modest, at under 2%, but I think it is a sign of management confidence at a time when many asset managers are struggling to stem client fund outflows. It also means M&G’s dividend yield now sits at 8.2%. I find that very attractive and continue to hold the shares in my portfolio.
A worsening economic environment could lead to investors getting nervous and pulling funds out of investments. That remains a risk to revenues and profits at M&G. But I think the company may benefit from its strong brand and positive business momentum. If it can stick to its aim of maintaining or raising the dividend each year, it could end up being one of the more lucrative dividend shares in my portfolio.
Imperial Brands
Another of the income shares in my portfolio is tobacco giant Imperial Brands (LSE: IMB). At the moment, the shares yield 8.5%. Imperial’s dividends are usually paid quarterly but are split unevenly. Two quarters have comparatively large dividends, while the other two have smaller payouts. The total annual payout has started to grow very slowly again, following a big cut a couple of years ago.
With cigarette use declining in most markets, there is clearly a long-term risk to both revenues and profits. Unlike many competitors, Imperial has doubled down on cigarettes. It does have a non-cigarette business but has reduced its ambition for that part of its portfolio. It has sold off its premium cigars business and is focussed on trying to increase the market share of its cigarette brands in key countries.
I actually think that strategy could help the company keep generating massive cash flows. Although cigarette use is declining, that is a gradual process that has been going on for decades in some markets. Imperial has learned how to operate in such an environment.
The addictive nature of cigarettes means that, like competitors, it is able to raise prices on its products without losing too many customers. That can help to offset volume declines. Even as volumes fall, Imperial still shifted the equivalent of over 100bn cigarettes in the first half of this year.
Why I am buying FTSE 100 dividend shares
No dividend is ever guaranteed. But I think both M&G and Imperial can continue to perform strongly as businesses in coming years.
Not many FTSE 100 members offer yields over 8% but these shares both do. That is why I have tucked them away in my portfolio as I try to grow my passive income streams.