The FTSE 100 is well-known for including several high-dividend shares. Although the average dividend yield for this large-cap index is around 4%, many shares pay much more. And here are some I’m considering for my portfolio.
First, at the top of the list is housebuilder Persimmon (LSE:PSN). With a chart-topping 16% dividend yield, it currently provides a bumper income.
£3,000 of Persimmon shares should give me around £480 in annual dividends. That’s more than enough to comfortably beat the elevated inflation rate we’re dealing with right now.
Cash, cash, cash
Many of the FTSE 100’s housebuilder shares are highly cash-generative. And Persimmon is no exception. It displays high levels of profitability and cash flow, in addition to a rock-solid balance sheet.
That along with a shareholder-friendly dividend policy has allowed it to continue distributing this level of income.
Slowing market?
A word of warning, however. Although a 16% dividend yield for an established FTSE 100 stock might sound appealing, I’d have to consider if it’s sustainable.
Another large housebuilder is Barratt Developments that recently warned that the housing market could be slowing.
And the Bank of England is expected to continue raising interest rates, which could put further pressure on property prices.
Any reduction in cash flow could lead Persimmon to cut its dividend, so that’s something I’d need to think about.
That said, a 40% decline in its share price over the past year now gives it a price-to-earnings ratio of just seven times. I reckon that’s cheap and would consider adding it to my Stocks and Shares ISA this year.
A top FTSE 100 miner
The next-highest-yielding FTSE 100 share is global miner Rio Tinto (LSE:RIO). It currently offers a 12% dividend yield, but that’s forecast to fall to 10% next year. Even so, it’s a substantial yield.
Despite being completely different businesses, there are several similarities with Persimmon. Rio, like Persimmon offers a high return on capital employed, a double-digit profit margin and exceptional cash flow generation.
In a high-inflation environment, Rio could be a good addition to my portfolio. Typically commodities tend to perform well during these times. And as a global mining business, Rio could benefit if underlying metal prices rise.
Reliable income share
Also, Rio’s dividend looks well-covered by its earnings. And with 12 years of back-to-back payments, I’d consider it to be a reliable income share.
One thing to bear in mind though. As a cyclical mining stock, a global economic downturn could reduce demand for its metals. Its iron ore is used to make steel, which is used to make buildings, bridges, cars and more.
That said, as a long-term investment, I would consider buying these FTSE 100 mining shares.
More 8% + yields
Other FTSE 100 shares that offer over 8% dividend yields include Barratt Developments, Phoenix Group and Taylor Wimpey. On average, these three demonstrate affordable dividends.
With an average dividend cover of two times, I have some comfort that their earnings will cover their anticipated dividend payments.
All three are profitable and established businesses and I would certainly consider these shares for my portfolio.