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I've been thinking about adding a few more. FTSE 100 stocks to my portfolio.
There are a couple on my radar that have yields greater than 8%. If I had extra money this month, I would buy one but not the other. I'll explain why.
imperial marks
In first place is one of the two tobacco companies in the FTSE 100: imperial marks (LSE: IMB).
I own your rival British American Tobacco and in fact he used to have a stake in Imperial at one time.
Like British American, a key risk is the long-term decline in smoking in many markets around the world. That could lead to lower income.
With its portfolio of brands and the addictive nature of tobacco, Imperial has some leeway to try to offset falling revenue by raising prices. But that approach has its limits.
Imperial has been trying to make the most of its existing cigarette business by trying to gain market share in five key sales territories. So far, that seems to be working. Last year sales revenue fell slightly, but earnings per share rose more than 50% year over year.
An ongoing share buyback should reduce the number of shares outstanding. That could allow Imperial to increase its dividend per share (up 4% last year) without spending more money overall.
I like the 8.6% yield. Imperial cut its dividend in 2020. One medium-term concern I have about the sustainability of the dividend is Imperial's weaker push into non-cigarette products than its rivals such as British American.
Legal and general
Financial services giant Legal and general (LSE: LGEN) is also a member of the FTSE 100. Its dividend yield is slightly lower than Imperial's at 8.3%, but is still more than double the average FTSE 100 yield.
With a strong brand, a large client base, and a focus on a market that is likely to see continued strong demand, I think Legal & General could continue to do well in the future. This month it announced a 5% increase in its annual dividend per share.
I think there could also be more room to increase dividends. But that may depend on how market conditions affect investor sentiment. If unstable markets cause asset values to decline and some investors withdraw funds, the dividend may be cut, as was the case in the 2008 financial crisis.
However, as a long-term investor, as Imperial battles falling demand for its core products, I think Legal & General could benefit from the growth. Last year it saw record volumes in its insurance businesses. I think your proven model could still work well.
I would buy one
I think both stocks have a few things going for them. That's why I've had both before.
Tobacco is facing declining demand in the cigarette segment. But that has already been the case for decades in some markets, although the dividends in the sector remain juicy.
However, I like British American's track record of annual dividend increases dating back to the last century more than Imperial's track record.
Looking ahead, I also prefer British American's strategy of rapidly increasing its non-cigarette sales compared to Imperial's more cigarette-focused approach.
So if I had extra money to invest today, Imperial wouldn't be on my FTSE 100 shopping list, but Legal & General would be.