All yielding over 6%, which of the FTSE 100's high 10 passive revenue shares is one of the best?

The preferred technique for selecting passive revenue shares is to check yields.

The desk under exhibits the present high 10 yielders on the FTSE 100.

However which is one of the best? In different phrases, which is the one with the dividend that’s probably to be sustained?

Purchaser beware

The very first thing to notice is that the record have to be handled with warning.

The data is compiled primarily based on quantities paid through the previous 12 months. Nevertheless, we all know that Vodafone is planning to cut back its payout by 50% this yr.

Additionally, it’s essential to think about one-off occasions. In June, HSBC paid a particular dividend of $0.21 following the sale of its enterprise in Canada. That is unlikely to be repeated over the subsequent 12 months.

And an organization with unstable earnings is more likely to have erratic dividend funds. Rio Tinto is uncovered to worldwide commodity costs, that means its return to shareholders is sort of inconceivable to foretell.

Trying again

As a result of dividends are by no means assured — and no person can see into the long run — historical past is usually the one (if flawed) method of creating how dependable they could be.

Trying on the 5 monetary companies firms within the high 10, M&G turned a standalone enterprise in 2019. In my opinion, that is too brief a interval to verify any sample.

And because the desk under illustrates, over the previous 5 years, there’s been no clear development within the dividend funds made by Aviva and Schroders.

Each Phoenix Group and Authorized & Common are extra dependable. Throughout the previous 25 years, the latter solely reduce its dividend through the international monetary disaster.

Though I’d need to do extra analysis earlier than shopping for both, at first look they look like wonderful revenue shares.

Going up in smoke?

Tobacco firms have a protracted observe report of paying substantial dividends. That’s as a result of their high-margin cheap-to-make merchandise are vastly money generative.

Certainly, British American Tobacco (LSE:BAT) qualifies as a Dividend Aristocrat because it has elevated its payout ever yr for 1 / 4 of a century.

Nevertheless, with growing restrictions on the sale of cigarettes, each British American Tobacco and Imperial Manufacturers are diversifying into vapes and different non-combustible options.

However these have a protracted method to go earlier than they generate the identical ranges of income and earnings as conventional tobacco merchandise.

Throughout the six months to 30 June 2024, British American’s New Classes contributed 13.2% to income and a couple of.3% of working revenue. Within the six months ended 31 March 2024, Imperial Manufacturers’ Subsequent Era Merchandise have been loss-making and accounted for 1.6% of turnover.

Nevertheless, governments world wide are putting restrictions on these so-called ‘reduced risk’ merchandise. And they’re costlier to make which can cut back the extent of surplus money out there for shareholders.

However for now, the sale of cigarettes generates masses of cash. In 2024, British American Tobacco expects to transform 90% of its adjusted working revenue into working money flows.

It’s ironic that, in my view, it’s the finest dividend inventory within the high 10 however one which I wouldn’t need to purchase.

That’s as a result of I’m a long-term investor and — ultimately — I feel there’s going to be an inflection level the place the money generated from the sale of conventional cigarettes falls extra sharply than the rise coming from new merchandise. Its beneficiant and dependable dividend will then come below risk.