LONDON -- The FTSE 350 is the aggregate index of the FTSE 100 and FTSE 250. This collection of the U.K.'s 350 largest listed companies contains a broad collection of investment opportunities.
The FTSE 100 is the home of older, established blue chips. In the FTSE 250, you will find some newer, fast-growing companies. The mid-cap index is also home to some former FTSE 100 stars. FTSE 250 companies are less well researched than their blue-chip counterparts. For this reason, an investor is more likely to find a pricing anomaly among the 250 than the top 100.
I trawled the FTSE 350 to find the 15 shares with the highest historical yield. Remember that a company's dividend is not fixed; a dividend can always be cut (or increased) at a later date.
Price (in pence)
Yield (historic, %)
Market cap (in millions of pounds)
|Cable & Wireless Communications||36||13.8||9.3||910|
|Man Group (LSE: EMG.L )||86||12.0||16.3||1,559|
|Phoenix Group (LSE: PHNX.L )||503||8.4||3.9||878|
|RSA Insurance (LSE: RSA.L )||112||8.2||9.4||3,985|
|UK Commercial Property Trust||66||7.9||N/A*||793|
|ICAP (LSE: IAP.L )||333||6.6||9.3||2,149|
Data from Stockopedia. *No forecast available.
Four of these looked particularly interesting.
1. Man Group
Man Group is a provider of hedge funds. In recent years, the company has suffered a dramatic fall from grace. Five years ago, shares in Man Group traded at 653 pence. Today, they can be bought for around just 86 pence.
Man Group stands out for its huge dividend yield. Based on last year's payout, Man shares come with a 12% yield. The problem is that this dividend was not covered by earnings. This means that unless profits improve, the dividend cannot be sustained.
Furthermore, the huge dividend yield suggests that few investors believe that the payout will survive. As the old adage goes: "If something looks too good to be true, then it probably is." Value and contrarian investors are often willing to overrule the consensus. However, in this case, I think that the investment community's reluctance to back the company is telling. Man operates in and around professional investors. I have my own adage: "the City knows its own."
Like Man, ICAP is a City company. ICAP operates in a somewhat obscure financial niche as an inter-dealer broker. The company helps buyers and sellers of financial contracts execute transactions by acting as a middleman. Financial institutions need a go-between like ICAP. Without an inter-dealer broker, it would be more difficult to trade at an attractive price.
The company has been an enormous success. Formed from the merger of two firms in 1999, ICAP grew to be a FTSE 100 company. Although recent price movements have seen the company drop down to the FTSE 250, there are no signs that ICAP is in any serious decline.
In fact, for the next two years, ICAP is expected to continue its growth. ICAP is forecast to grow both its earnings and dividend for 2013 and 2014. Consensus is for earnings per share to hit 38.5 pence for 2014 and the dividend to reach 23 pence. On today's prices, this equates to a price-to-earnings ratio of 8.6 and yield of 6.9%.
3. RSA Insurance
Insurer RSA is a company that I have been looking at ahead of the IPO of its competitor, Direct Line. With a market capitalization of 4 billion pounds, RSA is much larger than its newcomer rival.
With a heritage stretching back 300 years, RSA today employs 23,000 people and serves 17 million customers.
In the U.K., RSA operates More Th>n; a leading car, pet, travel and home insurance brand. RSA uses the cash flow from its insurance operations to pay a large shareholder dividend. This dividend has been increasing since 2006 and another two years of growth are forecast.
Unlike some of the other companies in this list, RSA has long been a high-yielding company. The shares have not traded higher than 120 pence in the last year. It is not since 2009 that RSA was consistently priced north of 140 pence.
Investors must decide if the sector is about to enter a period of decline. If not, then the likes of RSA are a great income opportunity.
4. Phoenix Group
Phoenix Group came to the market in 2010. Phoenix is a different type of life insurance company. Instead of writing new policies, it takes on old business that is now in 'run-off'.
This is primarily a risk management business. Phoenix needs to understand the obligations it is taking on and price them accordingly. Provided that it does this well, very reliable cash flows can be produced.
Phoenix has been using that cash flow to pay a chunky dividend. The company is on-course to repeat 2011's payout of 42 pence per share.
Phoenix recently announced its first-half results. The company expects to generate between 600 million and 700 million pounds of cash in the year, up 100 million pounds on its previous target. Phoenix's debt position meant that gearing was reduced to 46%. Phoenix is targeting gearing of 43% by the end of the year. A trading statement is expected at the end of October.
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