MENU

3 top FTSE 100 dividend stocks at bargain basement prices

Image: Barratt Developments. Fair use.

The FTSE 100 is littered with companies paying strong and reliable dividends, and it’s often possible to pick some up at attractive prices.

Where there’s bricks

It almost makes me weep when I see the size of the dividends that investors are shunning from our top housebuilders, with Barratt Developments (LSE: BDEV) being a great example.

Sure, the massive growth phase for earnings over the past few years is coming to an end and earnings are likely to grow only modestly over the next few years. But that phase has also seen dividends ramping up and predicted to deliver total yields of 7.3% and 7.4% (including special dividends) this year and next — and at the halfway stage the interim payment was lifted by 22%.

Meanwhile, with the shares priced at 522p, we’re looking at a forward P/E as low as 9.5. Why so cheap? The Brexit effect is still hurting the industry, but it makes no sense to me. There’s still a massive shortage of housing for people living in the UK  that’s not going to disappear any time soon — and it’s got nothing to do with our relationship with the EU.

Outsourcing cash

Shares in Capita (LSE: CPI) suffered a fall last September when the outsourcing specialist issued a shock profit warning, leaving the price down 50% over 12 months at 509p.

Fears were confirmed when underlying pre-tax profit for the year came in 19% below 2015’s, with underlying EPS down 20%. But the dividend was retained at 31.7p, and cover by underlying earnings seemed adequate (even if reported earnings didn’t come close).

With the shares in the dumps and on a forward P/E of only nine, forecasts suggest dividends will yield around 5.5% this year and next, though the reliability of that will depend on Capita’s ability to pull itself back into shape.

Chief executive Andy Parker said the firm has “taken quick and decisive action to reduce our cost base … and return the group to profitable growth,” adding that he’s confident “that our target markets continue to offer long-term structural growth.

There will be some disposals, but Mr Parker foresees a return to growth in 2018 — and if that comes off, those buying now could lock-in some tasty dividend yields.

Reliable energy

Centrica (LSE: CNA) shares have suffered a bit of a downward spell over the past few years, coupled with falling earnings and a reduced dividend. But that has actually lifted the forecast dividend yield, to 5.6% this year and rising further to 5.8% in 2018, as analysts have a modest 8% gain in EPS predicted for that year.

And that’s supported by the firm itself, which suggested at 2016 results time that it should be able to return to a progressive dividend policy when it gets net debt down to the £2.5bn-£3bn range — which it expects by the end of 2017.

The problem for Centrica, the supply side of British Gas, is that it has been losing customers over the past few years, and it needs to stem the flow and get its costs down. It’s already doing the latter quite nicely, with savings of £384m achieved in 2016 and a total of £750m targeted by 2020.

As for customer numbers, I’m not so sure but I can at least see the count stabilising — and I can see long-term support for dividends at least at current levels.

Do you want to be a millionaire?

Would you like to net yourself a million from investing in shares like these? Check out the Fool's 10 Steps To Making A Million In The Market report, which takes you through all you need to know, in simple steps.

What you'll learn, more than anything, is that the secret to long-term financial success is to spend less than you earn, invest your savings in shares, and perhaps most importantly of all... keep a cool head when all around are losing theirs.

What's more, it won't cost you a single penny of your savings to get yourself a copy, so just click here now for your completely free report.

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