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If we want to see some cheap FTSE 100 stocks, I think we need look no further than the insurance sector. Right now, three of the 10 biggest dividend yields come from insurance stocks.
And what’s more, all three offer yields of 7.5% or higher. Let’s start with the lowest.
City analysts put Aviva (LSE: AV.) on a 2023 dividend of 7.5%. Some sources actually put it higher, but that’s what Yahoo! Finance says, and I think it’s best to be conservative.
Aviva shares have had a tough five years, with the firm seen as bloated a few years ago. But it looks slimmer and more efficient now.
Cover by earnings is put at about 1.5 times for this year. And that’s not bad for the sector at all. So why do the big investors stay away from Aviva?
It must be down, at least in part, to their fear of anything related to the finance sector now. They have a short-term outlook, and this year does look risky for finance stocks.
But for those buying for the long term, I think the dividend prospects outweigh the short-term risks. I own Aviva, and I’m holding.
Legal & General
Legal & General (LSE: LGEN) comes next, with a forecast yield of 8.6%.
The last five years have been kinder to Legal & General shares. And we’re looking at a bit better cover too, at 1.6 times.
Is it the best in the sector for those seeking a passive income stream? I think it might be. The company faces the same risks as the whole sector this year. But over the long term, it’s been pretty robust.
I’ve owned Legal & General shares before, and I think I will again. The big dividend yield means it might be soon.
The firm has a progressive long-term dividend plan. If earnings fluctuate, that might be a challenge. But the idea of prioritising dividends is one that I like a lot.
Phoenix Group Holdings
Phoenix Group Holdings (LSE: PHNX) has the biggest forecast dividend in the sector, at 9%. It’s also one of the biggest in the whole FTSE 100. The shares are down over five years, and that’s helped.
Phoenix has a more unusual business model. It specialises in buying up closed life and pension funds and managing them.
That’s helped it keep up a good dividend yield for a few years now. Forecasts show it rising further over the next two years too.
There is one main risk for me, though, and that’s cover by earnings. The forecast stands at just 0.7 times. That makes me think it could be one of the first to cut its payments should the sector see a dip in earnings.
The fact that Phoenix isn’t in the business of selling new insurance products means a lot of investors might have overlooked it. And I see it as a good buy too, despite the 2023 risks.
Which would I buy?
It’s hard to pick between these three right now. But, you know, if I already had sufficient diversification, I’d be happy to hold them all.