The FTSE 100 has stuttered since hitting 8,000 in February. It’s down about 5% since then, and this weak performance has made some top British companies look cheaper than ever. Best of all, cheap prices mean higher yields. And these two Footise stocks now offer a 9%+ dividend yield. Should I buy them today?
M&G
In its short existence, asset manager M&G (LSE: MNG) has been a goldmine for dividends. Its current yield of 10.1% is massive and the second highest on the entire FTSE 100.
As far as income-paying stocks go, I can’t do much better. The yield is over double the Footsie average (3.7%) and even surpasses current sky-high levels of inflation (8.7%).
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And the share price? Well, it’s traded sideways since M&G was spun off from Prudential in 2019.
I’m surprised M&G – which was the UK arm – hasn’t performed better since the demerger. But it might mean an opportunity to get cheaper shares, so am I buying in today?
Well, what puts me off is the type of business. As an asset manager, the company draws revenue from commissions on the £300bn it manages. With this gargantuan balance sheet, it’s not easy to see what the risks are. This is often a danger when investing in finance firms.
The world-class dividend does tempt me though. I’ll put this stock on my watch list for now.
Phoenix
My second FTSE 100 stock is insurance firm Phoenix (LSE: PHNX). This is another huge dividend payer – its 9.4% yield is the third-highest on the Footsie.
These yields are super reliable too. If I had owned shares, I would have received 6%-8% each year for the last decade. Phoenix even paid a full dividend during the pandemic while other companies cut theirs left, right and centre.
The ‘safe’ dividend is thanks to the defensive nature of the industry. Insurance products are always needed. They’re not what gets cut from the budget in a recession or a stock market crash.
Like M&G though, Phoenix has a lot of moving parts. It has assets of £259bn. And actually, that’s down from £310bn because of recent stock market turmoil. This further highlights the risk of investing in companies with hundreds of billions on the balance sheet.
Similarly to M&G, this stock will go on my watch list for now.
My move
While it’s tempting to chase the highest dividend yields possible, it can be a fool’s errand. For these two companies, I’d be investing in a sector I’m less comfortable with. And yields around the 10% mark rarely stay that high.
I do still believe that lots of UK shares look like excellent value at the moment. So I will continue to hunt for undervalued stocks, with or without a bountiful dividend.
