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He FTSE 100 Index It's up more than 12% over the past year, but it's still packed with great value income stocks, many of which offer sky-high dividend yields.
Two blue-chip stocks offer a yield of over 9% annually, which far exceeds the yield on cash or bonds. While dividends are never guaranteed, I believe they can prove sustainable. I own both stocks and am willing to buy more before they stop paying dividends on September 26.
Insurance conglomerate Phoenix Group Shares (LSE:PHNX) offers one of the highest yields in the entire index, at 9.36%. It also has a pretty good track record of increasing shareholder payouts, year after year, as this table shows.
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Is Phoenix's dividend sustainable?
To fund this shareholder largesse, a company needs to generate large amounts of cash. Fortunately, Phoenix has performed well in this regard, exceeding its own targets and reaching £2 billion last year.
The stock price will never skyrocket, but it was up 4.34% in August. In a year, it's up 10.02%. Okay, it's not exactly Nvidia-growth style, but if you add yield to that, I'm looking at a potential total return of around 20% a year.
Phoenix must work hard to continue to report sales and cash flow, as it operates in the UK insurance market, a mature and competitive market. New growth opportunities are emerging, particularly in bulk annuities, but it is not alone in pursuing them.
The stock, which trades at 17.3 times earnings, isn't too cheap. That's just above the FTSE 100's average P/E of 15.3 times. However, I think there's a real opportunity here. As interest rates are cut, income from cash and bonds will inevitably fall. That will make high-yield stocks like this one look even more attractive.
The same goes for my second high-income pick for September, the wealth manager M&G (LSE: MNG) It also has an excellent dividend yield, just behind Phoenix at 9.19% per annum.
Can M&G afford its sky-high dividend too?
When the latest M&G dividend hit my trading account on 13 May, I certainly knew it. My 3,289 shares paid me £406.77, which I reinvested directly into the stock, thereby acquiring a further 196 M&G shares. I will also be paid dividends in the future and will reinvest every penny to increase my holding.
The downside is that I don't expect rapid dividend growth going forward, given that M&G only increased the 2023 payout by a measly 0.1p to 19.7p. Let's see what the chart says.
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M&G's share price is up 12.93% over the past year, so once again I'm on track for a 12-month total return of over 20%. The stock has underperformed since the group was spun off from the insurer. Prudential in 2019, but I hope there will be better days when economic and stock market sentiment improves.
Again, M&G shares were cheaper when I bought them. Today they trade at 16.8 times earnings, just above the FTSE 100 average. That won't stop me from buying them, though. I just need to get the money together before they become ex-currency on 26 September. Otherwise I'll regret missing out on even more dividends.