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Investing in high yield FTSE 100 dividend stocks can generate a lot of income. Thankfully, years of underperformance mean that many UK blue-chip stocks offer high dividend yields.
Buying high yield stocks can be risky though. A large dividend yield can be a sign of a distressed company whose share price has fallen. It may be difficult to meet consumer payment forecasts and pay decent dividends consistently.
As a result, stock pickers should focus on strong companies that grow earnings over time. We are talking about businesses with market leading positions in mature markets and strong balance sheets, for example.
With this in mind, here are two high-paying FTSE stocks to consider right now.
Legal and General Group
Simply put, Legal & General‘s (LSE:LGEN) money machine. It has a long history of delivering dividend increases, which it maintained even during the Covid-19 crisis when many other UK chips were suspending, reducing, or gaining shareholder rewards.
The company has promised to continue raising annual dividends over the next few years as well, albeit at a 3% drop. And I have no reason to doubt its ability to serve this purpose.
Its financial fundamentals are strong, and its Solvency II ratio was 223% as of June. Last month, it sold its Cala housebuilding unit for £1.35bn too, to give its balance sheet more strength.
City analysts expect earnings to continue rising over the next few years. So L&G’s dividend yield stands at 9.4% rising in 2024, eventually rising to 10% in 2026.
The highly competitive nature of its industry jeopardizes future shareholder returns. But I am optimistic that Legal & General will continue to thrive as a growing aging population drives demand for its retirement and financial products.
M&G Group
At 9.6%, IM&G‘s (LSE:MNG) dividend yield is not the biggest in the FTSE 100 today. Compare that to the broad forward average of the index which is lagging at 3.5%.
The financial services provider does not have a long track record of growing profits for Legal & General. But that’s because it was just spun Prudential back in 2019.
However, as the chart above shows, shareholder payouts rose significantly during this period. And City traders think the payout to shareholders will continue to rise over the next few years as well, leading to that big yield in 2024, which eventually rises to 10.2% in 2026.
Like Legal & General, M&G’s formidable cash generation has formed the basis of its expansive dividend policy. And based on the latest financials, it looks to be in good shape to continue to reward shareholders well.
At the end of June, its Solvency II ratio was 200%, up from 203% from the same point in 2023.
Like the broader sector, profitability at M&G is sensitive to volatility in financial markets, interest rates, currencies and inflation, to name but a few. This may affect its share price.
However, in the long term, I am confident that the FTSE company will deliver excellent returns, driven by those drivers who benefit from Legal and General.
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