There’s still no shortage of dividend stocks offering sky-high yields in the FTSE 100 right now. On paper, shares in battered connectivity and digital services provider Vodafone offer a staggering 10.3%. Cigarette seller British American Tobacco‘s current yield is even higher at 10.4%!
If I were looking to add a high-yield, top-tier constituent to my portfolio before the end of 2023 however, there’s one I would probably buy over any other.
Market laggard
Shares in financial services giant Legal & General (LSE: LGEN) haven’t exactly been on fire this year. As I type, they’re down a little over 3% in value. That’s a better performance compared to fellow FTSE 100 constituents like premium spirit owner Diageo (-22%) and luxury goods seller Burberry (-27%) but it still lags the return of the index as a whole.
This makes sense when we consider all the negative economic headlines in 2023. Given that it’s one of the biggest investors in the UK stock market, L&G was never likely to escape unscathed. Indeed, it revealed a 10% fall in assets under management back in August, as a result of poor market conditions, and £12.3bn in external net outflows.
However, I think the income stream makes up for this.
Monster dividends
Based on analyst projections, Legal & General shares will yield almost 8.5% in FY23. That’s a lot more than the typical index fund that tracks the return of the UK lead index. Right now, the latter stands at around 3.9%.
Interestingly, L&G’s payout is also higher than the 5.1% offered by the best Cash ISA. Now, I’m not against keeping some cash ‘under the mattress’ for emergencies. But anything beyond this doesn’t make sense to me. Research has consistently shown that shares massively outperform cash over the long term. Once inflation is factored in, money in the bank barely grows at all!
Another thing I like about L&G is that it has a strong history of hiking its dividends, at least since the Great Financial Crisis. It’s anticipated that the total payout will rise by another 5% in 2024. To me, this sends a signal that the company is in robust health despite the fragile state of the UK economy.
Optimistic about 2024
Naturally, the prospect of my money growing at a better clip than in a savings account doesn’t come without taking on some risk.
I have no better idea than anyone else just how L&G stock will fare in 2024. Anyone who says they can predict the movement of any share with absolute precision is probably not worth listening to.
Nor can anyone say with certainty that there won’t be a cut to that juicy dividend steam, especially as the payout is likely to be only just covered by profit this year. Yes, the situation is expected to improve in the next financial year but, again, there’s no guarantee.
This is why I’d make a point of spreading my money around the market before buying here. This will give me a buffer if some sectors don’t perform as well as hoped.
Personally though, I’m increasingly hopeful that next year could be a better one for investors as a whole.
And with L&G shares changing hands at 12 times earnings, time might be running out to snap them up at a good price.
