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The London Stock Exchange hosts several ultra-high-yield stocks, particularly within the FTSE 100, that may appeal to those interested in dividends. Among these, Legal & General and British American Tobacco stand out, both offering substantial dividend yields. These financial services and consumer goods stocks have demonstrated their ability to provide noteworthy returns to shareholders through consistent dividends.
Legal & General (LSE:LGEN)
Legal & General, a prominent financial services stock, is currently yielding 9.4%, one of the highest in the UK market. With the share price around 226p, the company's forward-looking dividend yield remains particularly attractive. Despite concerns that such a high yield might signal potential dividend cuts, Legal & General's payout remains stable, supported by solid financial performance.
In the first half of the year, Legal & General reported a slight increase in core operating profit, reaching £849 million. Additionally, the interim dividend was increased by 5% to 6p per share. The company's operating return on equity also rose to 35.4%, up from 28.6% in the same period last year. However, there was a slight decline in assets under management, which fell to £1.13 trillion, though asset management revenues increased by 6% during the half.
One potential risk for Legal & General is the impact of a possible recession in the US, where the company has been expanding its presence. A downturn could lead to reduced consumer and business spending on financial products, potentially affecting earnings. Nevertheless, management remains optimistic, expecting core operating earnings to grow by mid-single digits for the full year. The company’s balance sheet is strong, and a £200 million share buyback program is currently underway.
British American Tobacco (LSE:BAT)
British American Tobacco, a leading consumer stock, is another FTSE 100 company offering a high dividend yield, currently standing at 8.5%. The company owns well-known cigarette brands like Lucky Strike and Rothmans, as well as newer products such as Velo (oral nicotine pouch), Vuse (e-cigarettes), and Glo (heated tobacco). Despite a 21% increase in the share price year to date, the stock remains relatively inexpensive, trading at just 7.7 times forecast earnings.
The company faces challenges as its main cigarette business is in structural decline. For instance, cigarette volume growth in markets like Bangladesh, Brazil, and Turkey was offset by declines in the US. While British American Tobacco has attracted 1.4 million new smokeless product consumers over the past year, it remains uncertain whether this segment will achieve the profitability of traditional cigarettes.
Nonetheless, the company expects full-year revenue and adjusted earnings per share to grow by low single digits. Additionally, British American Tobacco plans to repurchase £700 million worth of shares this year and £900 million next year. Looking ahead, the company anticipates generating £40 billion in free cash flow over the next five years, more than enough to cover its annual dividend payments of approximately £5.1 billion.
