I think there’s never been a better time to buy these 3 FTSE 100 income stocks

These FTSE 100 (LON:INDEXFTSE:UKX) dividend growth stocks look too cheap to pass up, argues this Fool.

| 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.

Right now, income investors are spoilt for choice when it comes to buying blue-chip income. Indeed, at the time of writing the FTSE 100 as a whole supports an average dividend yield of 4.5%, which is significantly more than the 1.5% on offer from the highest-yielding savings account on the market today, according to my research.

With this being the case, today I’m going to highlight three FTSE 100 stocks that I believe currently offer once-in-a-lifetime yields.

Turnaround complete

The first company is FTSE 100 insurance group RSA (LSE: RSA). Investors have been giving this business a wide berth since 2013 when the group ran into trouble, losing £347m in that year alone and forcing management to act quickly to stem losses. 

After five years of restructuring, the business now looks as if it has finally recovered from past mistakes. For 2019, analysts are expecting earnings per share to rise a staggering 37%. They’ve also pencilled in a 36% increase in the dividend payout, which will give an estimated yield of 5.1% according to current projections. Not only is this the highest distribution the company has offered since the financial crisis, but its valuation is also extremely attractive compared to history.

What’s more, shares in RSA are currently dealing at a forward P/E of 12.4 compared to the five-year average of around 15.

Flying high

My next dirt-cheap income play is International Consolidated Airlines Group (LSE: IAG). A quick look at this business will quickly tell its shares are extremely undervalued at current levels.

Over the past 12 months, shares in IAG have declined by around 34% and after this slump, are dealing at a forward P/E of 4.6. However, the company’s fundamentals do not support this decline. City analysts are expecting earnings per share to rise from €1.16 to €1.20 by 2020.

Analysts reckon the company will increase its dividend to investors as well during this period. The City has the stock yielding 6.2% in 2019, and with the distribution covered 3.4 times by earnings per share, it doesn’t look to me as if this payout will come under pressure anytime soon.

With the stock trading at a discount of around 50% to its 10-year average P/E, and supporting the highest dividend yield since 2009, I reckon now could be the time to snap up shares in IAG on the cheap.

Growing market

My final FTSE 100 income play is global cruise operator Carnival (LSE: CCL). There is plenty to like about this business. As I have pointed out before, one of the main reasons why I am bullish on this company is because the demand for cruises is growing steadily around the world, and is forecast to continue doing so for many years to come.

As the operator of the biggest fleet of cruise ships in the world, Carnival is exceptionally well placed to profit from this trend. But the market seems to be overlooking this factor. Right now, the stock is trading at its lowest valuation in 10 years, even though earnings have nearly tripled in the past six.

On top of this, the stock supports a dividend yield of 4.1%, which is the highest yield offered by the shares since 2014. The distribution is covered twice by earnings per share. All of the above leads me to conclude that Carnival is another bargain income stock that’s worth adding to your portfolio today.

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.

Rupert Hargreaves owns no share mentioned. 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

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »