2 cheap FTSE 100 stocks I think will pay you for the rest of your life

These FTSE 100 (INDEXFTSE:UKX) stocks look unloved, but the market seems to be overlooking their income credentials, according to Rupert Hargreaves.

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Shares in Micro Focus (LSE: MCRO) plunged by as much as 30% in early deals this morning after the software provider issued yet another revenue warning.

In a trading update for the 12 months ending 31 October, the company announced that due to “the deteriorating macro environment” and “weak sales execution” it’s likely to miss revenue expectations for the full-year.

Management had been forecasting a full-year constant currency revenue decline of 4-6%. However after recent developments, the board has considered appropriate to revise the guidance to down 6-8%. Following this performance, management has decided to “accelerate a strategic review of the group’s operations” to optimise Micro Focus’ portfolio of products.

Focus on the long term

While today’s update is disappointing, I think the market reaction is a bit over the top. Yes, sales are expected to fall faster than anticipated, but the firm also says in its release that sales staff are pursuing “a significant pipeline” of business opportunities. Closing these deals by the end of the company’s fast-approaching financial year is the challenging part.

This isn’t the first time Micro Focus has run into problems. The good news is, in the past whenever the company has hit a speed bump, management has always managed to get the business back on track. I think there’s a high probability the same will happen this time around.

The company also has a strong track record of returning cash to investors. In fact, you could argue management has prioritised cash returns since its inception. I don’t think this is going to change any time soon and, after recent declines, shares support a dividend yield of around 9.5%. I think this dividend yield is here to stay.

I would even go so far as to say that based on its history of cash returns, Micro Focus is a stock you can buy and forget in your retirement portfolio for the long term. The City has not yet had time to reflect the lowered revenue target into their earnings forecasts, but I reckon the stock is trading at a mid-single-digit P/E after today’s slump.

Record returns

If software is not your thing, then another dividend stock I think will pay you for the rest of your life is mining group BHP (LSE: BHP). Two weeks ago, BHP declared a record dividend of $0.78 off the back of a 2% rise in underlying profit for its financial year to the end of June.

Underlying profit for the 12 months rose to $9.1bn from $8.9bn a year earlier. The record distribution comes after a year of record cash returns to investors. In the 2019 financial year, BHP has returned a total of $17bn to shareholders, excluding the final distribution.

With net debt at just $9.2bn at the end of the period, down from $26bn at the end of 2016, costs at record lows, and capital spending commitments for the next 12 months well-funded, I think there’s a good chance BHP will remain a dividend champion for the foreseeable future.

For fiscal 2020, City analysts have the stock yielding 7.5% and, based on current earnings estimates, it’s dealing at a forward P/E of 9.3.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Micro Focus. 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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