3 FTSE 100 dividend stocks with yields over 5% I’d buy in September

These 5%-yielding FTSE 100 (INDEXFTSE: UKX) dividend stocks should help you ride out any market uncertainty, 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.

The recent market sell-off made headlines. But it’s worth keeping this in perspective. Despite the recent volatility, the FTSE 100 is actually up by about 6% so far this year.

When you add in the FTSE’s current dividend yield of 4.6%, index-tracking investors look set to enjoy a 10%+ return this year.

Of course, the market may go up or down this autumn. My approach is to ignore this short-term noise and focus on buying good quality dividend stocks at reasonable prices.

Today, I’m going to look at three FTSE stocks I own with dividend yields of more than 5%.

This £183bn firm looks cheap to me

Royal Dutch Shell (LSE: RDSB) needs no introduction. The oil and gas supermajor is the biggest company on the FTSE 100. It’s responsible for a fair chunk of the index’s 4.6% dividend yield.

However, if you buy the stock direct, you should get to enjoy a 6.6% dividend yield this year. Dividends are never guaranteed, but Shell’s payout hasn’t been cut since World War II. I wouldn’t worry about a cut.

Two things investors are worried about are the falling price of oil and the environmental risks of burning oil. Shell is slowly pivoting towards gas to try to address these risks and secure its long-term future.

Rightly or wrongly, I think the world will be burning a lot of oil-based fuels for many years to come. In my view, the risks are reflected in the Shell share price. Trading on 11 times earnings with that chunky 6.6% yield, I rate the shares as an income buy.

A friend in need

We don’t know how good our car insurance companies are until we need to make a claim. But one company that’s been around a while and developed a strong brand is Direct Line Insurance Group (LSE: DLG).

I like the group’s solid profitability and good cash generation. However, this sector is out of favour with investors at the moment, as profits are under pressure from rising claims costs. Tough competition means that putting up prices is difficult.

The Direct Line share price has fallen by 12% over the last year, pushing the stock’s ordinary dividend yield to 7.3%. Analysts’ forecasts suggest an optional special dividend will be paid too, lifting the total yield to 9.5%.

I’m not sure about this, but I see the firm as a long-term survivor. In my view, the shares offer good value for long-term income investors at current levels. I may buy more for my portfolio.

New growth opportunity?

Cardboard packaging isn’t glamorous. But it is essential. The business is growing too. Bosses at DS Smith (LSE: SMDS) recently reported “double-digit growth” in sales of e-commerce packaging.

The firm also believes that new cardboard products could soon replace a lot of the plastic packaging found in supermarkets, as retailers try to reduce non-recyclable waste. Company bosses reckon that 1.5m tonnes of plastic in supermarkets could readily be replaced by Smith’s cardboard products.

One risk for shareholders is that an economic slowdown could dent demand for packaging materials, as shoppers buy less.

So far, there doesn’t seem to be any evidence of this. And with the shares trading on just 9 times forecast earnings, I think the DS Smith share price already reflects a cautious outlook. I’ve added this 5.3% yield to my portfolio and remain a long-term buyer.

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 Direct Line Insurance, DS Smith, and Royal Dutch Shell B. The Motley Fool UK has recommended DS Smith. 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

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I've come across -- 10.7% -- but I'm…

Read more »

Investing Articles

Up 81%, can this FTSE 100 turnaround share keep surging?

This recovering retailer has been one of the FTSE's greatest performers over the past year. Royston Wild considers whether it…

Read more »

Happy couple showing relief at news
Investing Articles

£10,000 in savings? I’d buy 4 passive income shares to target a £100 per week second income!

By buying passive income shares today, I have a great chance to eventually make life-changing wealth. Here's how I'd invest…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

I think this may be an unmissable chance to buy an oversold UK share before it rallies hard

Harvey Jones piled into this beaten down UK share because it looks cheap and offers a sky-high yield. Now he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’d invest £500 a month in shares to target a £29,000 second income

Investing in shares is a tried-and-tested way to build a second income. Our writer explains how he’d do it, starting…

Read more »