Two issues I search for when worth investing are low cost shares and excessive dividend yields. That’s, I wish to hunt down shares that appear undervalued, but additionally pay out heaps of money.

Fortunately, the UK’s FTSE 100 is full of shares consigned to the ‘bargain bin’ of worldwide equities. Many of those firms are sturdy, well-established companies with stable earnings and money circulate. Others are international giants doing properly on the world stage.

Low-cost shares and massive dividends

That stated, future dividends are by no means assured and careworn firms do minimize or cancel their payouts. This occurred usually in the course of the Covid disaster of 2020-21. However, most FTSE 100 corporations pay out common — and infrequently rising — dividends to their shareholders.

As my spouse and I each work, we don’t want dividends to spend right now. As an alternative, we make investments this money stream into shopping for but extra low cost shares, thus turbocharging our future returns.

For instance, listed below are two high-yielding Footsie shares ceaselessly present in income-seeking portfolios which are value contemplating.

1. Phoenix 

Phoenix Group Holdings (LSE: PHNX) is a consolidator within the UK long-term financial savings and retirement sector. It presents life insurance coverage, pensions and financial savings merchandise, whereas additionally profitably operating off present books of enterprise. As we speak, this group is valued at nearly £5.3bn.

Phoenix inventory is understood for its very beneficiant money payouts, making it a ‘dividend duke’ of the FTSE 100. On the present share price of 520.5p, the money yield is 10.2% a yr. That’s nearly 3 times the broader index’s yearly dividend yield of three.6%.

Over the previous 12 months, the Phoenix share price has ranged from 473p to 581.22p, so it’s at the moment in the midst of this vary. Nevertheless, whereas this inventory is up 6.4% over one years, it’s dropped by 32.6% over 5 years.

For the file, my household portfolio contains Phoenix shares, for which we paid 514.9p every. Although this holding’s worth has risen by only one.1% so far, we’re delighted with the double-digit earnings yield it delivers.

In fact, Phoenix operates in a fiercely aggressive setting, dominated by a lot bigger asset managers. Therefore, it’s in danger from charge erosion and falling funding returns hitting future income. Nonetheless, it may also turn into a possible takeover goal. That’s why we’re completely happy to carry this inventory for the long run.

2. British American Tobacco

And now for one thing fully totally different: British American Tobacco (LSE: BATS), one other low cost UK share delivering a excessive dividend yield. Based in 1902, this 123-year-old enterprise is among the world’s main producers of cigarettes, tobacco and e-cigarettes.

In fact, its biggest-selling merchandise hurt and even kill their customers (of which I’m one). Additionally, tobacco smoking is declining in most main developed nations. Even so, people who smoke get by way of many trillions of cigarettes yearly, serving to to assist the agency’s £74.8bn valuation.

The shares went on a tear in 2024 and have shot up 40% prior to now 12 months. Even after this market-beating surge, this inventory nonetheless presents a dividend yield of seven% a yr — nearly twice the FTSE 100’s money yield. Then once more, British American Tobacco shares are down 1.74% over 5 years.

The primary purpose these low cost shares should not already in my household portfolio is my spouse is a vehement anti-smoker, regardless of that juicy dividend yield!