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Dividend shares are dividend shares and growth stocks are growth stocks, and never the twain shall meet. But when they do, investors are in for a treat.
Especially when those dividend shares offer ultra-high yields as well. Like these two FTSE 100 stocks currently do.
British American Tobacco is on fire
I was impressed to see that British American Tobacco (LSE: BATS) shares had jumped 50% in the last year. Isn’t the cigarette maker supposed to be in a declining industry? One that is slowly being regulated out of existence? If so, nobody told the British American Tobacco share price.
The best the cigarette maker could do, or so I thought, was cling to its market share while working its brands hard. Smokeless products always felt like an add-on, not a game-changer. The dividend, currently 6.5% on a trailing basis, was the main attraction.
Yet the stock is in rude health. On 3 June, the company lifted its adjusted operating profits forecast by 1.5% to 2.5%. That’s followed a return to revenue and profit growth in the US, thanks to stronger sales of combustibles and a standout showing from its modern oral brand, Velo Plus.
The board is aiming for 3% to 5% annual revenue growth in the medium term. It’s also hiking share buybacks to £1.1bn next year, while keeping that progressive dividend going.
Can this continue? The consensus one-year share price target is 3,550p, a touch below current levels. So it may slow, but I suspect many of those forecasts pre-date the recent jump.
Of course, the risks haven’t vanished. Smoking kills, regulators are hovering, and weight-loss drugs may help more people quit. But this stock has shown it can deliver growth as well as income.
M&G shares are red-hot too
I don’t hold tobacco, but I do own M&G (LSE: MNG). I bought the wealth manager in 2023, mainly for the income, as it was yielding almost 10% at the time.
What I didn’t expect was the quickfire growth. The shares are up almost 18% in the last month and 30% over the year. Add in the dividend, and the total one-year return is closer to 40%. I’m happy.
M&G has its challenges. Markets are choppy and the shift to passive investing still threatens the group’s active fund management strategy.
However, it’s just announced a new deal that could give it a real lift. On 30 May, M&G revealed that Japan’s Dai-ichi Life will take a 15% stake. This should drive $6bn of new investment into M&G’s funds over five years.
The yield has dipped slightly to 7.75% but that’s still one of the highest on the FTSE 100. However, dividend growth is likely to slow, with the board targeting increases of 2% a year.
M&G is still rising on the Dai-ichi news, but nothing goes up forever. Markets remain unpredictable. The shares could easily take a breather, especially if we get another bout of stock market volatility.
After such strong runs, both stocks are likely to slow. Investors considering them today must take that into account, and do their research carefully. The income is still the big attraction here. I’d treat any further growth as a bonus.
