Earlier today, I was studying a table of FTSE 100 shares paying the highest passive income. Two of these were tobacco stocks, which my wife won’t allow us to own. Of the remaining eight shares, we own six in our value/dividend/income portfolio.
FTSE 100 stocks for passive income
All 10 of these high-yielding shares offer cash yields above 8% a year. Of the four stocks paying the highest passive income, we own three (two of which I discuss below).
Of course, shares are much riskier than cash deposits, plus table-topping savings accounts pay 5%+ yearly interest before tax. But I aim to invest in undervalued shares to generate higher income from dividends, plus long-term capital gains.
Dividend share #1: Phoenix Group Holdings
Phoenix Group Holdings (LSE: PHNX) shares offer the highest passive income among FTSE 100 stocks. This financial firm buys and runs off unwanted pension and insurance funds. My wife and I bought Phoenix shares for 544.4p each in August.
By managing these financial assets more efficiently, Phoenix generates healthy earnings to pass on in dividends. But falling financial markets have depressed its share price to bargain-basement levels.
With the shares close to their 52-week lows, the dividend yield has soared to 11.7% a year. Yet Phoenix has enough spare capital on its balance sheet to meet dividends for at least the next two years.
Today, Phoenix shares trade at 442.9p, valuing the group at £4.4bn. If I were a mega-billionaire, I would gladly buy this business outright. Sure, I’d expect a rocky ride as markets oscillate, but I’d also expect to make an outrageous fortune from this trade.
Summary for Phoenix Group Holdings
Share price
442.9p
52-week low
438.9p
52-week high
647p
One-year change*
-19.4%*
Five-year change*
-25.1%*
*These figures exclude Phoenix’s hefty cash dividends.
Income stock #2: M&G
Shares in asset manager M&G (LSE: MNG) offer the second-highest passive income among FTSE 100 stocks. My wife and I bought this stock at 199.6p in August.
As with Phoenix, M&G’s valuation been beaten down lately, driven lower by weakening financial markets. But like Phoenix’s, I expect M&G’s share price to rise from the ashes as markets rebound.
Thanks to stronger earnings, M&G recently boosted its interim dividend by 4.8% to 6.5p, from 6.2p a year earlier. And it’s for this steadily rising passive income that my wife and I bought this high-yielding stock.
At the current share price of 194p, M&G is valued at under £4.6bn. Also, recent share-price weakness has boosted its dividend yield to 10.3% a year, the FTSE 100’s second-highest. I’d gladly buy more M&G shares today, if had the cash to spare.
Finally, the future of both of these financial firms is heavily dependent on asset prices. If markets go into meltdown again — as they did in 2022 — then share prices could fall even further. However, I’d be a big buyer at much lower price levels!
Summary for M&G
Share price
194p
52-week low
168.35p
52-week high
229.9p
One-year change*
+7.9%
Change since October 2019 flotation*
-11.8%
*Excluding dividends
The post These 2 UK shares produce powerful passive income! appeared first on The Motley Fool UK.
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More reading
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Cliff D’Arcy has an economic interest in M&G and Phoenix Group Holdings shares. 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.
