As fear-inducing as the FTSE 100 crash is, there are gains to be made if we can keep our wits. From gold, for instance. If we have held gold for some time, the time is ripe to sell off some of our holdings. Gold prices haven’t been higher in seven years.
Buy FTSE 100 stocks for a high dividend yield
Stocks that generate a high passive income are also great investment bets right now. The key to investing in such stocks is to focus on the dividend yield rather than the actual dividend itself because it measures the rate of return on the investment. The dividend yield is the dividend amount for one year per share, divided by the current share price.
With share prices falling, dividend yields have been rising fast. To put this into perspective, there are 25 FTSE 100 stocks offering a dividend yield of 7% and above at present.
Healthy cover and future confident
However, I wouldn’t invest in FTSE 100 stocks only on the basis of a high dividend yield. In this time of uncertainty, I prefer those that are backed by healthy financials and reliably good prospects for the future. One of these is the multi-commodity miner Glencore (LSE: GLEN), whose dividend yield is now at almost 10%.
In its latest financial update, Glencore reported that it is confident of maintaining its dividends, even with any hit to commodity prices as a result of the spread of the coronavirus. It even mentions its healthy dividend cover in the same sentence, which is a confidence-builder for investors. Despite this, GLEN’s share price was down 36.7% at yesterday’s close compared to the start of 2020. By contrast, the FTSE 100 has fallen 21.6% over the same period. A month ago, the company already had enough going for it. Now, I think it’s an even better buy.
Positive dividend history and good prospects
Insurance giant Aviva (LSE: AV) is another share whose price has fallen dramatically since the start of 2020. Down by 34%, it now offers a dividend yield of 9.8%. In its latest financial update, it showed healthy growth and has continued to increase its dividends. It’s less confident than GLEN about the impact of coronavirus on its business, but I think there are still plenty of reasons to consider it.
One, its earnings per share (EPS) continue to rise, which is a good indication of how much the company can give back to investors. Two, it has a history of increasing dividends in the past few years. And lastly, the actual impact of the spread of COVID-19 is still unknown. If it’s contained in a relatively short time, the blow to business might still be manageable. Even if business gets affected in 2020, AV’s multi-national presence can keep it insulated. Moreover, the insurance business is growing one with ageing populations in the developed west and rising demand in emerging markets.
It might not sound like as much of a thumping buy as GLEN for the income investor, but I think Aviva’s a good one to at least consider buying.
