My top FTSE 100 buys for a starter portfolio this summer

Roland Head reveals his top FTSE 100 (INDEXFTSE: UKX) income buys for new investors this summer.

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Many investors are worried about the potential impact of Brexit on the stock market. Some point to the risk of a market crash after a 10-year bull run. And there’s always President Trump’s trade war with China to consider.

I agree that some stocks look overvalued at the moment. But I think the index also contains a number of potential bargains, with tempting valuations and generous dividend yields. If you’re interested in building a portfolio of FTSE 100 dividend stocks, here are my top picks for this summer.

No cuts since WWII

Oil and gas giant Royal Dutch Shell has not cut its shareholder dividend since the Second World War. That’s an impressive record that few companies can match.

To prepare for a lower-carbon future, Shell is now starting to position its oil operations for a long-term decline. Future growth will be biased towards gas and renewables.

In the meantime, this business is performing strongly and generating a lot of spare cash, much of which will be handed back to shareholders. Chief executive Ben van Beurden expects to return $125bn to shareholders between 2021 and 2025. That’s equivalent to a yield of about 50% of the current share price.

With RDSB stock trading on 12 times 2019 forecast earnings and offering a dividend yield of 5.6%, I rate Shell as a top income buy.

Moving pictures

Broadcaster ITV is out-of-favour with investors and battling falling revenues from broadcast advertising. But the firm’s online operations are growing rapidly and are starting to generate enough cash to replace lost revenue elsewhere.

Meanwhile, the ITV Studios business has been responsible for some of the biggest hits of recent years, such as BBC’s Line of Duty. Profit margins and cash generation remain strong.

The stock looks too cheap to me, on 8.3 times 2019 forecast earnings and with a 7.4% dividend yield. I think the firm could attract a bidder at this level, but I’m happy to hold for the long term.

Big pharma split

Pharmaceutical giant GlaxoSmithKline plans to split itself in two, leaving a consumer healthcare business and a specialist pharma operation. I believe this could help reduce debt and improve growth rates in both businesses.

The dividend looks stretched to me, but chief executive Emma Walmsley has promised to maintain the 80p payout for this year, at least. I believe pharmaceuticals are likely to remain a long-term structural growth story. I’m happy to keep collecting the 5% yield and await further progress.

A long-term bargain?

Brexit fears and difficult time for retailers have pushed shares in FTSE 100 landlord British Land down to less than 550p. That’s the lowest they’ve been since 2012. This sell-off has left the stock trading at a 40% discount to their net asset value of 905p per share.

In my opinion, this is just too cheap. British Land’s property portfolio is divided into prime London office space and multi-use developments, and major shopping centres around the UK.

Retail property values are falling, but I suspect that over the long term, demand for these assets will recover. In the meantime, I’m happy to accept the short-term uncertainty so I can collect the stock’s 6% forecast dividend yield.

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 British Land Co, GlaxoSmithKline, ITV, and Royal Dutch Shell B. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended British Land Co and ITV. 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.

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