Buying shares in companies that pay high-yield dividends is a popular strategy often used to counter rising inflation. With interest rates in the UK at 5.25% and not likely to fall any time soon, I’m looking for dividend shares that could pay out higher than that in the coming years.
For reliable dividend shares with a high likelihood of paying out, I’m looking for companies with predictable revenue and low debt. They should have earnings growth expectations above 5% and a debt-to-equity ratio below 2.00. It’s worth noting, though, that a high dividend yield can be indicative of financial troubles. So I also check a company’s free cash flow and historical payout data.
With that in mind, I’ve identified two FTSE 100 companies that I believe could deliver inflation-beating returns in 2024.
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M&G
M&G (LSE:MNG) is an international investments management firm based in London with £342bn assets under management. Recently released M&G half-year results reveal a 31% increase in operating profit between June 2022 and June 2023, suggesting an efficient business that’s performing well. Sure, past performance does not guarantee future results. But the heavily regulated investments and pension sector enjoys relatively predictable revenue and generally offers reliable dividend payouts.
According to analysts, M&G dividends look likely to pay out at 20.5p per share in total during 2024, up from 20.1p in 2023. Furthermore, with an estimated average price-to-earnings (P/E) ratio of 10.2 in 2023, it seems investors expect growth. On the flip side, some analysts feel that M&G stock may be overvalued and pension stocks could take a hit if we enter a recession next year. Even so, I think long-term prospects for M&G are promising, and I expect to see it increase profits in the next three to five years.
Aviva
Aviva (LSE:AV.) is another well-established pension company I’m looking at to secure high-yield dividends in 2024. With a debt-to-equity ratio of only 0.68 and a predicted 20% growth over the next 12 months, Aviva’s financials caught my attention. Earnings per share are at $0.123, up from a loss of £0.063 last year. That’s an impressive recovery that I think will continue to improve in the coming years.
While pension stocks typically offer reliable dividend payouts, it’s worth noting that with a yield of 8%, Aviva may not have sufficient earnings to cover payouts. Aviva dividend payments have increased over the past 10 years but payouts have been sporadic. Still, with a £10.7bn market cap and assets that cover its liabilities, I believe Aviva is a good way to earn some passive income from dividend shares in 2024.
To fully capitalise on my investments, I’ll also consider using a dividend reinvestment plan (DRIP) to put my profits back into the stock, thereby compounding my gains.
