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For 18 months or more, my wife and I have been building a new stock portfolio. Our goal was to create a fund designed to dramatically increase our passive income through stock dividends.
Of course, we could “fire and forget” this fund, leaving it alone to do its job over the years. However, I prefer to keep a close eye on our financial assets, especially when markets rally.
Two stocks with delicious dividends
Currently, our income portfolio contains 15 different FTSE 100 shares and five FTSE 250 stocks. We buy each of these shares for their juicy passive income. For example, these are two of the top-performing holdings in our latest portfolio.
1. Vodafone
We bought a telecommunications company. Vodafone Group (LSE: VOD) in December 2022, paying 90.2pa share for our stake. Initially, the share price strengthened and closed at 102.76 pence on February 20, 2023. Unfortunately, it has been going downhill almost since then.
As I write, the shares are trading at 66.96p, valuing this business at £18.2bn, a small fraction of its peak value. But sustained declines in its share price have sent Vodafone's cash yield soaring.
Today, this Footsie stock offers a massive dividend yield of 11.5% per year, the highest in its index. The bad news is that double-digit returns rarely last. In fact, the group could cut future dividends to deal with its net debt of €36.2bn (£30.9bn).
To date, we have suffered a paper loss of more than a quarter (-25.8%) of our initial investment. However, I have high hopes that CEO Margherita Della Valle can deliver on her turnaround plan. Ideally, I would like to see Vodafone's revenue, profits and cash flow increase in 2024/25.
On the other hand, Vodafone has been a graveyard for value investors for many years. Its shares have fallen 28% in one year and 51.7% in five years. But with bill price increases set to add to inflation this spring, I'm optimistic this former giant can pull through.
2. M&G
M&G (LSE:MNG) is another stock we buy for its market-beating dividends. This was one of our most recent purchases, having purchased in August 2023 for 199.6pa shares.
The shares are currently around 224.8p, valuing the investment manager at £5.3bn, a relatively light weight on the FTSE 100. But they are well above their 52-week low of 168.35p, reached on March 20, 2023 during a brief American banking crisis.
Why do I like M&G? Two reasons. First of all, their business is quite simple to understand. Founded in 1931, M&G today manages £342 billion worth of financial assets on behalf of 5 million individual investors and more than 800 institutional clients.
Secondly, with a dividend yield of around 8.9% per year, M&G shares channel a flood of cash to their patient owners. And with excess capital on its balance sheet, I expect this to continue.
Of course, the fortunes of asset managers are closely tied to the health of the capital markets. For example, when stock and bond prices crashed in 2022, M&G shares took a beating. Furthermore, while its shares are up 10.9% in a year, they have gained less than 1% since listing in London in October 2019.
In short, I hope to make a lot more passive income from M&G in the coming years!
