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Earlier today, while looking at the top performing stocks in the UK FTSE 100 index, I found 10 Footsie stocks with dividend yields above 7.4% annually. Nice.
Delicious dividends
While the blue-chip index currently offers a dividend yield of 4% per year, the average cash yield of these 10 dividend dynamos comes in at a tidy 8.9% per year.
What's more, I found that my family portfolio includes four of the five highest-yielding stocks in the FTSE 100. That's because, as an old-school value investor, I love watching my dividends come in.
For the record, here are four Footsie 'dividend kings' we own for their cash-generating power:
| Company | Sector | Market cover | Share price | One year change | Five year change | Dividend yield |
| Vodafone | Telecommunications | £21.7 billion | 70.4p | -20.7% | -54.0% | 11.0% |
| Phoenix Group | Sure | £5.3 billion | 518.6p | -16.4% | -14.7% | 9.9% |
| M&G | Asset Management | £5.3 billion | 225p | +17.3% | 0.0%* | 8.9% |
| Legal and general | Asset Management | £14.7 billion | 243.8p | -5.5% | +0.3% | 8.0% |
Dividend dynamos
Why do these FTSE companies pay such high dividends, averaging 9.5% a year across all four?
For the telecommunications giant Vodafone Group, it's clear why it offers a double-digit dividend yield. Over the past five years, the group has paid an unchanged dividend of 9 cents per share. Meanwhile, its share price has more than halved in five years, sending its dividend yield soaring.
Phoenix Group (a major closed-end pension and insurance fund manager) has billions of pounds of additional capital on its balance sheet. This cash pile allows it to continue funneling large amounts of cash to shareholders. In fact, analysts expect its dividend to increase over the next two years.
The story of a 93-year-old investment manager is similar. M&Gwhich went public in London at the end of 2019. Since then, M&G has paid a dividend yield above the market, but its shares are now worth 225 pence, equal to its float price.
'High Yield Financial stocks' Theme Continues at Historic Investment Manager Legal and General Group, founded in 1837. Like Phoenix and M&G, L&G's strong capital allows it to pump cash into the pockets of its owners. Surprisingly, L&G even maintained its dividend during the Covid-19 crisis of 2020-21.
Dividends are not “easy money”
Dividend investing may seem like an easy route to wealth, but history has taught me otherwise. Future dividends are not guaranteed and may be cut or canceled without notice. Indeed, dozens of FTSE 100 companies reduced or withdrew payouts when coronavirus crashed stock markets.
Additionally, ultra-high cash returns often don't last. Some companies cut dividends to strengthen their balance sheets or invest in future growth. Additionally, when stock prices rise, this reduces dividend yields.
Finally, while dividend investing isn't for everyone, it works for me and my wife. Currently, we reinvest our dividends by purchasing more shares to increase our future returns. But when we retire, we will use this cash to offset our living expenses. And that's why FTSE 100 dividends are a win-win!
