If you have £1,000 to invest today, then I highly recommend looking in the FTSE 100 for bargains.
Right now there’s a handful of stocks that support dividend yields of 5% or more, above the market average of 4.5%, and today I’m going to cover two of these income champions.
Fishing for income
B&Q owner Kingfisher (LSE: KGF) might not be the first company you think of when looking for income champions, but I believe this firm has incredible income credentials.
At the time of writing, the stock supports a dividend yield of 5.6%. The distribution is covered twice by earnings per share, so there’s plenty of headroom to either grow the payout from current levels or maintain it if profits come under pressure.
On top of this, the stock is currently trading at a bargain-basement 8.9 times forward earnings, which looks cheap at first glance. That being said, like so many other retailers, Kingfisher is suffering from falling sales and earnings. Sales are expected to decline by around 3% this fiscal year, and earnings per share will drop 33%.
That’s what the City thinks anyway. The company’s own figures show that group sales rose by 1.7% using constant exchange rates in the firm’s first fiscal quarter to the end of April.
On this basis, I think there is a good chance the company could outperform expectations. If it does, I wouldn’t be surprised if the stock jumps as a result. Adding to the appeal of this undervalued retailer is the fact that it has a clean balance sheet. At the end of 2018, it reported a net cash balance of £53m.
Turnaround in progress
The other FTSE 100 income champion that I think might be a great addition to your ISA today is WPP (LSE: WPP).
It was one of the most hated companies in the UK’s leading blue-chip index for a while last year. Luckily, sentiment has started to improve recently as the business has outperformed expectations. Analysts were expecting a company to report a 3% decline in sales for its second quarter, but WPP beat the City with a drop of just 1.4%.
It seems the brand’s image isn’t as tarnished as some City analysts initially believed. Several large clients have turned to the group to provide marketing services this year, offsetting client outflows. Cost-cutting and asset disposals are also starting to chip away at group debt. Over the past 18 months, the group has disposed of more than 44 associate companies, with a total value of £3.6bn and closed 68 offices worldwide, cutting 3,100 jobs in the process.
Even though City analysts are expecting the company’s earnings per share to drop by 4% this year, that will still leave the 6.2% dividend yield covered 1.7 times by earnings per share. Further, with even more asset sales on the cards, WPP’s balance sheet is only set to improve over the next 12 to 24 months, which will add further support to the distribution. A P/E of 9.5 seems to be cheap considering the fact that the company is the largest marketing business in the world.
That’s why I think it is worth considering this FTSE 100 income stock for your ISA today.
