The FTSE 100 has historically been a frustrating investment for many. For example, if you exclude dividends, in the noughties, the index saw no growth at all, and actually fell.
However, the tide has started to change in the last few years. In fact, some of this poor performance has created many cheap shares and high dividend yields.
If we’re looking at nominal increases only (ignoring dividends), the last decade has seen the Footsie climb by 66.3%. That’s not bad… but it’s not overly impressive either.
But if we also account for dividends, investors’ returns in the index have proven much more lucrative. The Footsie returned an average annual return of 9.2%, equating to a total return of 140.2% in that period. That’s much more like it!
Given that dividends have been significantly important to its returns, let’s look at some of the highest-yielding stocks in the index.
Plenty of options
On the whole, the FTSE 100 has a pretty decent dividend yield of 3%. The S&P 500, the main stock market index in the US, has a comparatively lower yield of 1.1%.
This is because there are plenty of companies in the FTSE 100 that offer yields that would make income investors’ mouths water:
| Stock | Yield |
| Legal & General Group | 8.6% |
| Standard Life | 7.3% |
| Land Securities Group | 6.9% |
| Barratt Redrow | 6.8% |
| M&G | 6.7% |
It should be noted that dividends aren’t guaranteed, but the above represents the top five yielding stocks in the UK’s top stock market index right now.
Legal & General shares offer a particularly attractive passive income opportunity for investors to consider.
For example, if investors wanted to make an extra £200 a month, buying 10,968 shares in the company could help to target this second income. This would cost £28,072.60 at the firm’s current share price of 255.95p.
But not every great stock pays a high dividend. I believe there’s one that presents a great opportunity for investors to consider.
Great potential
I believe Rolls-Royce (LSE:RR.) is one of the top UK shares right now.
There are risks for the company. Most notable is the war in Iran and how it could potentially cause a jet fuel shortage. This could be a real problem for the firm in the short term, as it could result in fewer flights taking place, and in turn lower demand for the company’s aircraft engines and maintenance.
However, the longer-term thesis remains intact, with many promising areas of the business showing great potential.
One example is its Defence division. The sad reality of the times we live in is that global wars are becoming more prominent. Rolls-Royce stands to benefit from this. In its latest trading update, it showed that original equipment defence deliveries increased by 20% year on year.
Furthermore, the firm’s power systems division looks set to help power the rise of AI. It currently has a backlog of £7.3bn, and as more money on AI data centres is spent, the aircraft engine manufacturer should thrive.
Therefore, I think investors should consider buying Rolls-Royce shares.
