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The FTSE 100 has enjoyed a barnstorming year. One side effect of so many record highs being broken is that dividend yields have fallen. That’s because higher share prices push down the percentage return of dividends.
The average yield across the index is now 3.17%. This is below historical levels, which may make Footsie stocks a little less attractive to those interested in world-beating dividend stocks.
For this reason, big dividend hunters may want to zero in on the higher end of the index. The biggest FTSE 100 yields often pay double the index average and sometimes more. Here are the three attractive Footsie stocks, all with dividends beating the average by at least two.
Big yields
The first stock I think is worth considering is M&G. With a 7.69% dividend yield, the City of London investment manager offers the fourth–highest yield on the index.
The firm’s dividend history is strong, with five years of consecutive increases, albeit with a cancellation during COVID-19 like many other companies. The five-year growth rate is a little thin at just 2.42%, below the Footsie average.
A second stock to consider is British American Tobacco. With an £80bn market cap, the world’s second-biggest cigarette seller is a true behemoth. Its big global revenues are why it can pay a 6.34% dividend yield, exactly double the FTSE 100 average. It’s the eighth-largest yield at present.
With over 25 years of consecutive dividend increases, British American Tobacco has well-earned its reputation as a Dividend Knight. Increases are expected in the coming years too. Of couse, the long-term decline in cigarette consumption is a risk to bear in mind.
Number one
The third stock to consider is Legal & General (LSE: LGEN). The financial services provider offers a 8.9% dividend yield, the second-biggest on the Footsie. It’s actually the biggest if we exclude the current number one from WPP, which is getting reduced.
It’s worth pointing out that a yield so high is extremely rare. Around 9% is a decent chunk of change from any stock, never mind coming solely through dividends.
A yield so high is sometimes a sign that a dividend cut is incoming. On the other side of the coin, it’s sometimes a sign that the shares are at low ebb. With Legal & General, I suspect it’s the latter.
For the most part, analysts agree with me here, too. Of the 14 analysts covering the stock, only two give it the thumbs down. One analyst forecasts a 40% increase in share price over the next 12 months.
Dividends are never guaranteed, of course. They fluctuate regularly too, so the current yield can’t be ever counted on in future. But all things taken into account, I think Legal & General is an excellent dividend stock for investors to consider.
