No investor can afford to ignore top dividend-paying stocks in today’s low interest rate world. Here are four FTSE 100 companies that are easily overlooked, but whose solid yields should keep your portfolio ticking over in the years to come. They might provide some capital growth, as well.
Keep It Legal
Legal & General Group (LSE: LGEN) has been one of the best FTSE 100 performers lately without getting the credit it deserves. It is up a whopping 160% over the past five years, against a meagre 10% on the index as a whole. L&G merits praise for leaping on the tracker bandwagon before it even started rolling, and it now has a lucrative, low-cost passive fund operation.
It survived the collapse of the annuity market following recent pension freedom reforms by expanding sales from bulk annuities and auto-enrolment workplace pension schemes. Net cash generation has soared from £320m a year in 2008 to £1.1bn today. Earnings per share (EPS) growth looks strong at 15% next year and steady at 6% in 2016. By then the yield is forecast to hit 5.5%. At 15.66 time earnings it isn’t cheap, but that still looks a price well worth paying.
Feeling Is Mutual
Maybe it’s the name, but investors rarely see Old Mutual (LSE: OML) as a sexy stock. It has looked sprightly lately, however, rising more than 12% in the last month, after Barclays hailed it as “under-priced” and upgraded it to overweight.
Over five years, Old Mutual has delivered 65% growth, and all the numbers look set fair for this South Africa-focused insurer. It is valued at a modest 12 times earnings. EPS is forecast to grow 11% this year and 5% next. Operating margins of 43.4% look meaty. There are juicier yields than Old Mutual’s progressive 4.1% but most of them carry greater risks, whereas this one is nicely covered 2.1 times. If you have ignored it, Old Mutual merits a fresh look.
Pennon Is Mightier
Value investors might want to hold their noses before sinking money into water, sewage and waste specialists Pennon Group (LSE: PNN), which trades at a pricey 20 times earnings. That is surprisingly high given the problems afflicting subsidiary Viridor, which turns recycled plastics and metals into energy, and has been hit by the falling oil price. Still, Pennon has grown 31% over five years.
Given its pricey valuation you know the yield won’t be spectacular, although 3.88% is more than presentable. With EPS forecast to drop 9% next year perhaps this isn’t the best time to overpay for Pennon. It may be worth looking for a buying opportunity, however, with EPS forecast to rebound to 17% in 2017.
Lucky Number Severn
Severn Trent (LSE: SVT) also looks pricey, trading at around 20 times earnings, but it has more to show for it, having gained 65% over five years. The yield looks a little watery at 3.77%, having been cut 5% in line with regulator Ofwat’s recent proposals. The company is aiming to raise the dividend at least in line with RPI inflation until 2020, although with RPI at just 0.8% in September, investors will be hoping for more than that. With EPS set to drop 11% in the year to next March and another 2% the year after, again, investors may want to wait. But this is well worth adding to your watchlist.
