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3 income stocks I’d buy in January

Image: Marks & Spencer. Fair use.

A secure income is a thing of beauty, especially in uncertain times like these. So cast your eyes over the following three FTSE 100 giants, which all offer a base-rate-thrashing yield of around 5% a year – or more.

Big oil income

I hope you were bold enough to buy BP (LSE: BP) this time last year, when crude was plunging below $30 a barrel and the oil giant’s share price had sunk to just 343p. Today, Brent stands at around $56 and BP at 515p, and yes, these two numbers are entirely connected. Where the oil price goes, so goes BP’s share price. It’s up 50% in the last 12 months.

Contrarians may claim this has killed the investment case for BP. That may be true if you’re looking for a recovery play, less so if you’re seeking income. Yes, the yield has fallen from around 7% to 5.18% today, but it looks a lot safer. The company is edging closer to break-even point, thanks to rising crude prices and aggressive cost cutting, and this will help secure the payout. The oil price could slip if producers backslide on recent production cuts, but the outlook is more promising than it has been for some time. 

On your Marks

High street stalwart Marks & Spencer (LSE: MKS) has had a very different year to BP, its share price falling 25% in the last 12 months. Some might see this as a recovery opportunity, but be warned, plenty have got sucked into that trap over the last seven or eight years.

The real value at Marks lies in its income prospects: it currently yields 5.74%, nicely covered 1.9 times. Clothing retailers look set for a tough year, judging by the troubles afflicting Next. Marks & Spencer’s general merchandise (clothing) division fell out of fashion years ago but bizarrely this may give it some protection, as management is wisely tilting the business towards its flourishing food operation. Posh grub looks more Brexit-proof to me: Brits gotta have their ready meals. Its current valuation of just 9.45 times earnings should also whet the appetite.

Royal returns

You aren’t paying over the odds for the income stream from Royal Mail (LSE: RMG) either, with the company trading at 11.05 earnings. Its share price is down 6% in the past three months, which gives you a squeak of a buying opportunity. This could be a little risky as we haven’t yet heard how the group did over the crucial festive period, but income machines like this one aren’t just for Christmas.

I don’t foresee much share price growth as Royal Mail may struggle to make headway in the key UK parcels market, while Brexit could threaten growth plans in continental Europe, where it recently posted double-digit growth. However, it’s one of the most solid dividend payers on the FTSE 100, currently yielding 4.83%, covered 1.9 times. Royal Mail’s UK dominance – where it boasts more than 50% of the market – healthy balance sheet and lucrative London property portfolio should ensure the income deliveries get through.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.