2 FTSE 100 dividends I’d buy with Woodford cash

These FTSE 100 (INDEXFTSE: UKX) stocks offer a mix of income and contrarian value, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investors who were left locked into the Woodford Equity Income Fund when it was suspended in June should be receiving their first payout in the next few days.

If you’re in line for some cash, you may be starting to think about where to invest this money. I’d guess that if you put cash into Woodford’s funds, you were hoping he’d repeat his past success with big-cap contrarian investments.

I’m going to look at two unloved FTSE 100 stocks you might not have considered before. Both of them look reasonably priced to me, with dividend yields of around 5%. I reckon they could prove to be profitable buys for a long-term portfolio.

Cruise ship blues

Carnival (LSE: CCL) is the world’s largest cruise ship operator. The FTSE 100 firm owns brands including Carnival, Princess Cruises, P&O Cruises and Holland America. It’s been in growth mode for a number of years and sales have risen by more than 30% since 2014.

However, growth has slowed over the last couple of years. Costs have risen and last year saw “a significant downturn” in demand from the group’s large Western European market. The company has also faced a number of disruptive one-off events that have affected its cruise schedules.

The Carnival share price reflects these changing conditions. The stock has fallen by more than 25% over the last year and now trades on just nine times forecast earnings, with a dividend yield of 4.9%.

I believe this could be a buying opportunity. The global cruise market remains in growth mode, especially in Asia. The demographic appeal of cruising is expanding, with more young people and families choosing this type of holiday.

Carnival owns many of the most famous brands in cruising and I’m confident it will remain the market leader. I think the shares looks attractive at current levels and have been buying for my own portfolio.

DIY nightmare

Another company that’s unloved at the moment is Kingfisher (LSE: KGF). This group owns B&Q and Screwfix in the UK, plus similar DIY chains in France and Eastern Europe.

Former boss Veronique Laury tried to unify these retailers’ product lines, which would have cut costs and improved profit margins. But she couldn’t overcome the impact of weak sales in France and slowing sales at B&Q.

Laury departed last autumn and has been replaced by experienced retail executive Thierry Garnier. He’s already indicated that he thinks the group is “trying to do too much at once” and may not be staying close enough to local markets. I suspect Garnier intends to find a way to slim down and refocus this business.

Kingfisher is unusual among big retailers as it has a strong balance sheet with minimal debt and good cash generation. Historically, profit margins have been significantly higher than comparable retailers such as supermarkets.

Given this fundamental strength, I think Kingfisher stock looks cheap at the moment on just 10 times forecast earnings. The dividend yield of 5.2% looks safe to me, too. I reckon this stock could be one of the safest bets in UK retail, and view the shares as a contrarian buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Carnival. The Motley Fool UK has recommended Carnival. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »