As an older investor (I’ll soon be 56), my investing strategy is far more conservative (even boring) than it was in the early years. These days, my active portfolio contains 27 holdings: 14 FTSE 100 shares, six FTSE 250 holdings, and seven US stocks.
And as an old-school value investor, I’m always hunting for unloved stocks, especially those that offer market-beating dividend yields for passive income. For example, here are two Footsie shares we own whose cash yields approach three times the wider index’s.
1. Vodafone
Shareholders of Vodafone Group (LSE: VOD) had another tough year in 2023. Over one year, the telecoms group’s share price has dived 27.8%, plus it has crashed by 54.9% over five years.
In short, Vodafone stock has been a value trap for ages. Despite this, my wife and I took the plunge in December 2022, buying in at 89.5p a share. What a mistake that turned out to be.
As I write, this Footsie stock trades at 67.36p, down almost a quarter (-24.7%) from our purchase price. This values Vodafone — Europe’s largest listed company in 2000! — at under £18.3bn.
Following prolonged price slides, this stock now offers a dividend yield of 11.6% a year. This is the highest in the FTSE 100 and 2.9 times the wider index’s cash yield of 4% a year.
Alas, history has taught me that such high dividend yields rarely last. Either share prices recover or future dividends are cut, both of which drive down yields. And with €33.4bn (£28.7bn) of net debt to service, CEO Margherita Della Valle may decide to slash Vodafone’s future cash payouts.
Therefore, I eagerly await the group’s next trading update on 5 February…
2. Phoenix
Phoenix Group Holdings (LSE: PHNX) is another FTSE 100 stock we bought for its market-thrashing cash yield. This company buys, manages, and runs off legacy pension and insurance funds. Thanks to higher interest rates, the market for pension buyouts is booming right now.
At their 52-week high, Phoenix shares peaked at 647p on 2 February 2023. As I write, they stand at 508.6p, 21.4% lower and valuing this firm at £5.1bn — a relative FTSE 100 minnow.
As with Vodafone, I was attracted to Phoenix for its high dividend yield, currently 10.2% a year. What’s more, with so much spare capital on its balance sheet, cash payouts for the next two years are already covered.
That said, Phoenix’s fortunes are closely tied to the performance of capital markets, which were highly volatile in 2020 and 2022. Thus, future weakness in bond and share prices could hit its returns to shareholders. What’s more, the shares are down 19.1% over one year and 19.9% over five years (excluding hefty dividends).
Still, we paid 544.4p a share for our holding last August and I have high hopes that the shares will exceed this mark in 2024. And while we wait for these FTSE 100 shares to rebound, we get a juicy 10.2% a year in cash to spend or reinvest into yet more shares!
