As an older investor (I’m 56 in a few weeks), my investment strategy has evolved markedly over time. Today, my family portfolio is much less risky than it was in the early years. Also, it’s far more focused on delivering passive income in the form of share dividends.
Two dividend dynamos
The problem with cash dividends is that future payouts are not guaranteed. Hence, they can be cut or cancelled at any time (as happened in the Covid-19 crisis of 2020/21). Another setback for dividend investors is that not all UK-listed shares make these cash payouts.
Happily, almost all member companies of the elite FTSE 100 index do return cash to their shareholders. For example, here are two Footsie stocks my wife and I own that pay delicious dividends to their owners.
Phoenix Group Holdings (LSE: PHNX) is an unusual — perhaps even boring — company. It buys, manages, and runs off legacy pension and insurance funds. And thanks to higher interest rates, the market for pension buyouts boomed in 2023.
Just over a year ago, this share briefly hit 647p on 2 February 2023. As I write, it stands at 498.87p, valuing this group at exactly £5bn. But we own these shares largely for their whopping dividend yield of 10.4% a year.
The good news is that Phoenix has built up so much spare capital on its balance sheet that it can afford to pay the next two years of dividends with relative ease. Nice.
However, should financial markets crash again, as they did in 2022, then Phoenix shares could take a hit. Indeed, they are down 20.7% over one year and 21% over five years. But this excludes that juicy passive income from dividends, which is primarily what I’m after.
Sticking with the same sector — asset management and insurance — my wife and I are also happy holders of M&G (LSE: MNG) shares.
Founded in 1931, this asset manager listed on the London stock market in October 2019 at 220p a share. Currently, the share price hovers around 221p, just a penny above the float price.
As with Phoenix, my attraction to M&G stock stems from the passive income from its market-beating dividend yield. Currently, this stands at 9% a year — more than double the wider FTSE 100’s average yearly cash yield of 4%.
As with all of our other dividends, we reinvest our M&G cash payouts into buying yet more shares. Over time, this will increase our share ownership and should boost our future returns.
That said, M&G faces similar risks to Phoenix, in that its future revenues, earnings, and cash flow are driven by asset prices. Thus, if stock and bond markets tank, so too could this stock.
Also, though the share price is up 8.8% over the past year, it’s barely moved since the flotation — again, excluding dividends. But we’re on board the good ship M&G for the long haul, so short-term price moves aren’t a big issue!
Cliff D’Arcy has an economic interest in both shares mentioned above. The Motley Fool UK has recommended M&G. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.