Two 10%-yielding FTSE 100 dividend stocks I’d buy today

These FTSE 100 (INDEXFTSE: UKX) dividend stocks have both fallen by over 40% this year. Roland Head says they’re too cheap to ignore.

| 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.

Last week’s stock market crash saw the FTSE 100 fall to the lowest levels seen since 2011. As a result, my research suggests that there are 18 FTSE 100 stocks with forecast dividend yields of at least 10%.

To be honest, some of these payouts looked doubtful to me, even before the coronavirus outbreak. But I believe that some of these stocks now offer great value for income investors.

I reckon that buying the right shares today should deliver years of market-beating income. In this piece I want to look at two big dividend stocks I own, starting with television group ITV (LSE: ITV).

Retune your television

The ITV share price has fallen by more than 40% so far this year and was trading at 85p at pixel time.

To be fair, this FTSE group was facing challenging conditions even before the coronavirus outbreak.  Things have now got much worse.

Travel firms are cancelling ad campaigns planned to promote this year’s summer holiday season. I suspect other advertisers will scale back their activity too. Based on the information available so far, ITV expects ad revenues to fall by 10% in April alone.

However, I think that focusing on the short-term outlook for TV advertising is missing the point. ITV is much more than just a conventional broadcaster. In 2019, the group generated 36% of all profits from programme production. Much of this content is sold to other broadcasters.

Super profits

There’s also another attraction. I mentioned that ITV was already facing challenging conditions. That’s true. But the company has remained highly profitable, despite this.

The group’s latest accounts show that ITV generated an operating margin of 16% in 2019 and earned a return on capital employed of nearly 24%. These are impressive figures that are well above the market average. They highlight the group’s historically strong cash generation.

Is the dividend safe? I think it’s hard to be certain at this time. But management says it plans to hold the payout unchanged at 8p again in 2020. At current shares prices, that would give a dividend yield of 9.4%.

On balance, I think ITV shares offer great long-term value at the moment. I’m hoping to buy more over the coming weeks.

An advertising concern

The shift online in the advertising world is also a concern for FTSE 100 ad giant WPP (LSE: WPP). The group’s recent results met with a downbeat reception when turnaround boss Mark Read said that performance would be flat, at best, in 2020.

That was before the impact of the coronavirus stepped up in Europe and the US. Being realistic, I expect WPP to report a fall in revenue and profit in 2020.

However, this shouldn’t necessarily cause any longer-term problems. Drilling down into WPP’s 2019 results tells me that the only region that didn’t report growth last year was North America. Elsewhere in the world, the group’s operations performed well.

The US market is WPP’s largest, so this remains a concern. But I think it should be fixable, given WPP’s size and presence in most key consumer markets. As with ITV, I think the bad news for WPP is already reflected in its share price.

WPP stock is now trading on less than seven times forecast earnings, with a dividend yield of around 10.5%. For patient long-term investors, I reckon this is a great opportunity to buy.

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 ITV and WPP. The Motley Fool UK has recommended ITV. 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »