The FTSE 100 achieved one of its best performances since the financial crisis in 2019. However, despite this achievement, there are still plenty of bargains on offer in the index, especially for income seekers.
Here are three such companies that look both undervalued and offer a market-beating dividend yield.
Persimmon
Homebuilder Persimmon (LSE: PSN) has come under fire over the past 12 months due to concerns about the quality of the company’s housing. Recent trading updates from the business show the impact this has had on performance.
The company’s latest trading update showed a 2.4% decline in revenues. This reflected the group’s actions to spend more time on the quality of its homes, according to management.
Despite these issues, customers are still queuing up to buy Persimmon properties. At the end of December, the group had a total forward sales pipeline of nearly £1.4bn, locking in half a year of revenue.
As well as the company’s forward sales pipeline, at the end of the year, it had a cash balance of £844m, which should be more than enough to support distributions to investors for the next 12 months.
Persimmon is looking to pay out a total of 234p per share to investors this year, giving a dividend yield of 7.7% on the current share price.
Taylor Wimpey
Staying with the homebuilding sector, Taylor Wimpey (LSE: TW) also looks to be an excellent income investment for 2020. Like its larger peer, Taylor is a cash cow.
Its latest trading update shows that the company ended 2019 with £546m of cash on the balance sheet. That’s after a £644m capital return to investors in 2019.
In 2020, management is targeting a total cash return of £610m. This should give a dividend yield of 8.3% on the current share price.
And the outlook for the company’s dividend seems robust as well. It ended 2019 with a record total order book of £2.2bn, representing nearly 10,000 homes. These numbers suggest that the business could be on track to surpass its entire output for 2019 over the next 12 months.
It delivered approximately 16,000 homes in 2019 after ending 2018 with an order book of nearly 8,000 homes. These numbers insinuate the company could provide as many as 20,000 homes in 2020, a record for the group.
As such, now could be a great time to snap up shares in this booming business.
Imperial Brands
Tobacco group Imperial Brands (LSE: IMB) has been an income favourite for years.
However, recent growth concerns have sent the stock plunging. Tobacco consumption around the world is declining, and tobacco companies are having to innovate to try and stay ahead of the curve.
E-cigarettes were supposed to be the industry’s saviour, but after a spate of vaping deaths across the US, the backlash has meant sales growth has slowed substantially. Investors have been quick to punish Imperial and its peers as growth has slowed.
Still, for income investors, the stock appears to offer value. It is currently trading at a price-to-earnings (P/E) ratio of 7.3. The shares also support a dividend yield of 11%. This implies the stock offers a wide margin of safety. The distribution is covered 1.3 times by earnings per share, which also means that the payout is relatively safe for the time being.
As such, now could be a great time to snap up this income champion at a discounted price.
