Investor should never buy a stock purely because it has a high dividend yield. But if that income looks sustainable, it can be very hard to resist.
Combining these three FTSE 100 income heroes in a Stocks and Shares ISA could generate an average yield of more than 7%. I wouldn’t suggest new investors rush out to buy all three. Two are in the same sector and diversification is vital. High yields can also be hard to sustain, but these three look reasonably robust.
Legal & General’s income is massive
Asset manager and insurer Legal & General Group (LSE: LGEN) has the most generous dividend on the entire blue-chip index at 8.1%. It also boasts a solid track yield of increasing shareholder payouts year after year, always the sign of a solid operation.
The downside is that the shares have underperformed as the board struggles to increase profits. Also, the board says it will only increase dividends by a modest 2% a year in future. Although it did find the cash to fund a record £1.2bn share buyback.
I think Legal & General Group is still worth considering for income seekers. I hold it myself. But I’ll be keeping an eye on those profits. Because one day, I want to see the shares growing as well.
Check out Standard Life’s mighty dividend
The second-highest FTSE 100 yielder is another insurer, Standard Life (LSE: SDLF), which recently rebranded from Phoenix Group. It has a generous trailing yield of 7.3% and the board has hiked shareholder payouts every year for the last decade. Standard Life has the edge over Legal & General in one respect. The share price is up 30% in the last year.
Coincidentally, its board has also trimmed dividend growth to just 2% going forward. That’s a concern, but at least the income starts from the high point. Standard Life operates in a tough and competitive market, where it has to keep finding new sources of revenue to fund its largesse. the shares won’t grow every year, but I think this one is worth considering too.
Don’t overlook Londonmetric shares
The third-highest FTSE 100 yielder at 6.9% is a less familiar name. It’s a real estate investment trust (REIT) called Londonmetric Property (LSE: LMP), which runs a diversified portfolio of commercial property, covering logistics, healthcare and entertainment.
REITs must pay 90% of their annual taxable income to shareholders as dividends, which is why they have such generous yields. However, the UK property sector has been bumpy lately, and the Londonmetric share price is down 10% over the last year and more than 20% over five. It may continue to struggle as inflation and interest rates climb, but at some point I’m hoping that cycle will turn.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Underlying performance remains strong, with net rental income climbing 16.6% last year to £455.3m. I don’t own any REITs myself, but I’m intrigued, and am now considering it as a new form of income for my own portfolio.
Should you invest £5,000 in Legal & General Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Legal & General Group Plc made the list?
Harvey Jones owns shares in Legal & General Group and Standard Life.
