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Rising interest rates mean that cash savers can now get a 3% income with no risk. But I’m looking for much higher yields from my passive income shares. After all, dividends are never guaranteed and share prices can fall. If I accept the risks of investing in stocks, I want some extra reward.
Here, I’ve selected two FTSE 100 shares I think should be able to deliver high yields of 8% or more in 2023, and maintain these payouts in the future.
An 11% yield?
London-based life insurer and asset manager M&G (LSE: MNG) was spun out from Prudential a few years ago. The shares haven’t made much progress since then, but I think the business is starting to display real signs of a turnaround.
Indeed, I’m starting to think M&G’s business could be a potential bargain for an income-seeking investor like me. This FTSE 100 stock currently offers a forecast dividend yield of 11% for the year ahead. I don’t see any obvious reasons why this payout won’t be affordable.
Falling markets made life difficult for asset managers during the first half of 2022, but M&G was able to report a net inflow of £1.2bn into its funds. This was notably better than some rivals and suggests to me that former CEO John Foley’s efforts to revamp the fund business are paying off.
Looking ahead, management is “cautiously optimistic” about a turnaround in the group’s performance. I’m optimistic too. My sums suggest the business is on track to generate the cash it needs to support the stock’s forecast dividend yield of 11%.
The main risk I can see is that M&G’s fund turnaround will fail to generate the kind of sustainable gains that’s needed to support long-term growth. That could force new chief executive Andrea Rossi to cut the dividend at some point.
So far, momentum seems good. In my view, M&G shares look like a decent buy for passive income today.
How much would I need to invest? If I wanted to generate a £250 monthly income from M&G shares, I estimate that I’d need to invest just over £27,000.
A proven winner
My second pick has a slightly lower 2023 forecast yield of 8.3%. However, unlike M&G, Legal & General Group (LSE: LGEN) has a long track record of strong growth and well-supported dividends.
Legal & General now has more than £1tn of assets under management, making it the biggest asset manager on the London market (although some US firms are bigger).
This size has allowed the group to make long-term direct investments in areas such as infrastructure, the environment and energy. It’s been a profitable strategy so far, generating an average return on equity of 20% over the last five years.
Perhaps the biggest risk with this business is simply that it’s so large and complex. I can’t analyze L&G’s investments in any kind of detail.
There are certainly some risks. But Legal & General has been in business since 1836 and I trust the group’s disciplined, long-term strategy.
How much would I need to invest in this case? Legal & General’s 8.3% dividend yield means I’d need to invest around £36,000 to generate a £250 monthly income.