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As an old-school worth investor, I like to purchase low cost shares after which maintain them for years and typically many years. And as I grow old (I’m 55 this week), I have a tendency to purchase increasingly more revenue shares.
What are revenue shares?
Income shares are shares that I purchase for his or her ongoing capacity to churn out money dividends to traders. After all, lengthy expertise has taught me that these dividends account for a sizeable slice of my long-term returns.
However, most London-listed shares don’t pay dividends to their shareholders. In many circumstances, these corporations are loss-making, or reinvest their earnings to spice up future development. Also, future dividends aren’t assured, to allow them to be lower or cancelled with out discover.
Therefore, my completely happy searching floor for income-generating shares is the blue-chip FTSE 100 index, the place all however a handful of shares pay common dividends. Here are 5 Footsie shares that every one supply marketing-beating money yields to affected person traders like me.
Five FTSE 100 dividend shares
Right now, the FTSE 100 provides a dividend yield of round 4% a 12 months. But these 5 shares supply dividend yields effectively above that of the broader index. I’ll begin with their share costs, then transfer on to the shares’ fundamentals.
| Company | Share worth | One-year change | Five-year change | Market worth |
| Aviva | 427.5p | -22.3% | -37.1% | £12.0bn |
| Legal & General | 241.6p | -8.8% | -6.4% | £14.5bn |
| M&G | 207.2p | -8.8% | -7.2% | £4.9bn |
| Rio Tinto | 5,559p | +4.9% | +50.3% | £92.5bn |
| Vodafone | 96.25p | -21.0% | -52.3% | £25.8bn |
The solely one among these 5 revenue shares to achieve in worth over the previous 12 months is mega-miner Rio Tinto, whose shares are up virtually 5%. The remaining 4 shares have all dropped over the previous 12 months, with telecoms big Vodafone Group and insurer Aviva worst hit.
Of course, falling share costs translate into increased dividend yields (all else being equal, that’s). Here’s how these 5 companies’ money yields stack up:
| Company | P/E ratio | Earnings yield | Dividend yield | Dividend cowl |
| Aviva* | – | – | 7.3% | – |
| Legal & General | 6.6 | 15.1% | 8.0% | 1.9 |
| M&G* | – | – | 9.5% | – |
| Rio Tinto | 8.8 | 11.4% | 7.3% | 1.6 |
| Vodafone | 14.9 | 6.7% | 8.1% | 0.8 |
Note that insurers/asset managers Aviva and M&G‘s trailing earnings are negative. Thus, they don’t at present have legitimate price-to-earnings ratios, earnings yields and dividend cowl. But these figures ought to be restored this 12 months, as each teams return to revenue in 2023.
Shares with each excessive earnings yields and market-beating dividend yields actually enchantment to me, particularly if their corresponding dividend cowl is excessive. For instance, due to its spectacular 15.1% earnings yield, L&G inventory provides a whopping dividend yield of 8% a 12 months, lined 1.9 instances by earnings.
Similarly, Rio Tinto shares supply a dividend yield of over 7% a 12 months, lined 1.6 instances by earnings. Then once more, with the worldwide economic system anticipated to weaken in 2023, earnings at many of those corporations will seemingly take a knock this 12 months. But as a long-term investor, I can trip out this market volatility.
Would I purchase all 4 of those revenue shares at this time? My reply is not any, however solely as a result of I already personal 4 of those dividend shares. The just one I don’t already personal is M&G, which is already on my purchase record for when the following tax 12 months begins on 6 April!
