3 FTSE 100 dividend stocks yielding more than 5% I would buy in September

Recent declines have left these FTSE 100 (LON:INDEXFTSE:UKX) stocks ripe for the picking, says Rupert Hargreaves.

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St James’s Place (LSE: STJ) is a company some investors love to hate. The wealth manager is one of the largest in the UK, but its fees have irked plenty of clients who think it’s charging too much.

Clients can pay as much as 4.5% in initial advice fees with further fees of 1% or more per annum levied on funds managed by the group. Exit charges also apply, which can discourage investors from leaving to seek cheaper deals elsewhere.

Still, despite these charges, investors across the UK have entrusted the group with more than £100bn of their cash, so St James’s has to be doing something right. And that’s why I think the stock could be a fantastic addition to your income portfolio today.

As St James’s has grown over the past six years, management has prioritised dividend growth. The payout has increased at a compound annual rate of 25%.

Today, the stock supports a dividend yield of 5.4%. Only on a handful of other occasions has the yield reached this level. As a result, I think now would be a great time to snap up shares in this dividend growth champion.

Turnaround complete

Another FTSE 100 dividend stock that I’ve got my eye on today is insurance group RSA (LSE: RSA). The company used to be one of the top income stocks in the FTSE 100 but, in 2014, it was forced to slash distribution as it struggled with rising costs, alongside increasing losses and asset impairments.

RSA lost a staggering £350m in 2013, a low point of the company. Since then, management has been working flat out to restore the group’s probability and reputation. It earned £349m in 2018 and analysts believe net income could rise to £515m or 48.8p per share by 2020. Based on these forecasts, the stock is trading at a forward P/E of 10.8.

On top of this, RSA’s dividend credentials have been restored. Analysts are expecting the company to distribute 25.7p per share to investors this year, giving a dividend yield of 4.9% on the current price. The payout is expected to grow a further 18% in 2020, leaving the stock yielding 5.7%.

Cash cow

The third FTSE 100 dividend stock yielding more than 5% I think could be a great addition to your portfolio in September is retailer WM Morrison Supermarkets (LSE: MRW). 

City analysts believe this business will distribute 9.7p per share to investors as a dividend in its current financial year. Based on this estimate, it looks as if the shares could yield 5.4% on a forward basis. 

What I like about this retailer is its cash generation. Morrison’s has produced £250m in free cash flow per annum on average for the past two years, easily enough to cover the annual dividend.

On top of this, the group’s balance sheet is much stronger than most other retailers. Net gearing, the ratio of net debt to shareholder equity, was just 22% at the end of fiscal 2019, down from 60% at the end of fiscal 2014. 

The combination of this healthy balance sheet, robust free cash flow and Morrison’s fiscal responsibility, leads me to conclude this dividend champion could be a fantastic addition to your portfolio. 

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 no position in any of the shares mentioned. 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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