Picture supply: Getty Photos
Dividend shares could be a nice selection for traders trying to try to earn additional revenue from their extra money. However they could be a bit much less thrilling than development shares.
This, nonetheless, doesn’t should be the case. The FTSE 100 has some shares that may give revenue traders all the thrill they want – however perhaps greater than they may need.
FTSE 100 dividends
Proper now, the 5 highest-yielding dividend shares within the FTSE 100 are the next:
StockDividend YieldWPP11.06%Authorized & Common9.04%Phoenix Group8.21%M&G (LSE:MNG)7.53%Mondi7.37%
Excessive yields, nonetheless, don’t at all times imply excessive returns. Regardless of the dividends, traders who purchased shares in WPP or Mondi 5 years in the past are nonetheless down on their investments.
That leaves Authorized & Common, Phoenix Group, and M&G. These shares have labored for traders since 2020, however the one which stands out is M&G.
After largely buying and selling sideways since 2020, M&G’s share value has climbed 48% since April. However is that this a brand new starting for traders, or a case of what goes up should come down?
Profitability
M&G’s share value has been boosted by some robust revenue development lately. The agency is concentrating on 5% annual development in working earnings and it has made an excellent begin.
Pre-tax earnings went from a loss within the first half of 2024 to a £248m acquire in 2025. And this places the corporate in a stronger place by way of its Solvency II ratio.
Whereas a few of this has been the results of strategic partnerships, cost-cutting has been a giant a part of M&G’s success. However I’m barely sceptical of this as a long-term development technique.
No enterprise can lower prices indefinitely. However a 7.5% dividend yield means traders would possibly suppose the inventory could possibly be an excellent funding even with out a lot in the best way of development.
Dangers
One of many essential causes M&G comes with such a excessive dividend yield is that it’s topic to a variety of dangers. And these aren’t easy for traders to determine.
IFRS 17 mismatches are one instance. These occur when one thing (for instance, a change in rates of interest) causes the agency’s belongings and liabilities to maneuver asymmetrically.
These can increase earnings – and M&G notes this has occurred lately – however they’ll additionally go the opposite manner. And there isn’t a lot the corporate can do to remove it.
This creates a threat for shareholders. And it implies that proudly owning the inventory is unlikely to be completely clean, regardless of how exhausting the corporate tries to offset these dangers.
Boring?
Not one of the FTSE 100’s top-yielding dividend shares is in a dynamic development business like synthetic intelligence or anti-obesity remedy. However that doesn’t imply they’re boring.
M&G shareholders – for instance – would possibly discover their earnings fluctuate greater than most resulting from issues past the agency’s management. That doesn’t precisely sound boring to me.
Whether or not it’s the type of pleasure traders need, nonetheless, is one other query. A 7.5% dividend yield seems to be engaging, however I’ve bought my passive revenue sights set elsewhere.
