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As an older investor (I'll be 56 in a few weeks), my investing strategy has evolved noticeably over time. Today, my family portfolio is much less risky than in the early years. Additionally, it is much more focused on generating passive income in the form of stock dividends.
Two dynamos of dividends
The problem with cash dividends is that future payments are not guaranteed. Hence, they can be cut or canceled at any time (as happened in the Covid-19 crisis of 2020/21). Another setback for dividend investors is that not all UK-listed shares make these cash payments.
Fortunately, almost all member companies of the elite FTSE 100 The index returns cash to its shareholders. For example, here are two Footsie stocks that my wife and I own that pay delicious dividends to their owners.
1. Phoenix
Phoenix group holdings (LSE: PHNX) is an unusual, perhaps even boring company. Buy, manage and manage legacy pension and insurance funds. And thanks to higher interest rates, the pension buyout market boomed in 2023.
Just over a year ago, this stock briefly hit 647p on 2 February 2023. As I write, it sits at 498.87p, valuing this group at exactly £5bn. But we own this stock largely for its huge dividend yield of 10.4% annually.
The good news is that Phoenix has built up so much additional capital on its balance sheet that it can afford to pay the next two years of dividends with relative ease. Nice.
However, if financial markets decline again, as they did in 2022, Phoenix stock could take a hit. In fact, they have dropped 20.7% in one year and 21% in five years. But this excludes that juicy passive income from dividends, which is mainly what I'm looking for.
2. M&G
Continuing with the same sector (asset management and insurance), my wife and I are also happy owners of M&G (LSE:MNG) shares.
Founded in 1931, this asset manager listed on the London Stock Exchange in October 2019 at 220 pence per share. The share price is currently around 221p, just one cent above the float price.
As with Phoenix, my attraction to M&G shares comes from the passive income of its market-beating dividend yield. This currently stands at 9% per annum, more than double the FTSE 100's average annual cash return of 4%.
As with all our other dividends, we reinvest our cash payments from M&G into purchasing more shares. Over time, this will increase our share ownership and should boost our future returns.
That said, M&G faces similar risks to Phoenix, in that its future revenue, earnings and cash flow are driven by asset prices. So, if the stock and bond markets tank, so could these stocks.
Furthermore, although the share price is up 8.8% over the past year, it has barely moved since the IPO (again, excluding dividends). But we're on board the good ship M&G for the long term, so short-term price movements aren't a big deal.
