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A Stocks and Shares ISA looks like the perfect home for a portfolio of dividend-paying FTSE 100 stocks. There are some sky-high yields at the moment, and I actually hold four of the top five biggest FTSE 100 income payers.
Topping the list is wealth manager M&G, with a colossal yield of 9.12%. Earlier this month it sent me a £450 cash payment, which I automatically reinvested to buy yet more shares.
Next up is insurer and asset manager Legal & General Group, yielding 8.83%, closely followed by another insurer, Phoenix Group Holdings, which yields 8.46%.
Passive income stream
All three are in financial services, and while the sector’s had a rough ride , the businesses are still throwing off cash. However, the Legal & General share process has fallen 4.2% in the last year, eating into that income.
| Stock | Trailing dividend yield | 1-year share price growth |
| M&G | 9.12% | 7.56% |
| Legal & General | 8.83% | -4.20% |
| Phoenix Group | 8.46% | 25.32% |
| Taylor Wimpey | 7.87% | -18.57% |
| British American Tobacco | 7.12% | 33.97% |
There’s certainly some crossover here, and it’s probably a bit daft to own all three financials. But I couldn’t resist those yields.
I also hold housebuilder Taylor Wimpey, which currently yields 7.87%. The share price has been sketchy of late, as high inflation and interest rates hit buyer demand and drove up costs. On the plus side, my reinvested dividends pick up more stock as a result.
British American’s shares are on fire
The fifth biggest yielder is British American Tobacco (LSE: BATS), which is the only one I don’t own. That’s a personal choice rather than an investment one. It’s been a cracking performer.
British American Tobacco’s share price has jumped 33% over the past year and it still yields a generous 7.12%.
2024 results were solid, even if reported revenues dipped 5.2%, due to the exit from Russia and Belarus, and currency pressure.
Organic revenue rose 1.3%, with its newer, smokeless products now making up 17.5% of group sales. It added 3.6m adult users in this category, taking the total to 29.1m.
The group managed to sell a staggering 505bn cigarette sticks and 13bn other tobacco products last year. So it’s not out of puff just yet.
It’s pushing forward with a strategic shift to a ‘Smokeless World’ by 2035. Whether regulators will let it get there is anyone’s guess. New health risks may emerge.
After the strong recent share price run, I’d expect it to slow. However, today’s price-to-earnings ratio of 9.1 isn’t exactly demanding.
For now, its dividend looks well supported, with cash flow of £7.9bn and a 2% dividend hike to 240.24p.
High income, low growth
If I split a £20,000 Stocks and Shares ISA equally between these five big yielders, I’d lock in an average income of 8.3%. That would generate £1,660 in my first year alone. It’s a cracking return at a time when savings accounts are starting to look less generous.
Over time, that income might grow too, but only slowly. Many of these firms are hiking their dividends by around 2%, which is currently lagging inflation.
When yields are this high, a bit of sluggish dividend growth is forgivable. Dividend income is never guaranteed, but I think all five are worth considering, although investors should target some growth as well.
