If you have £2,000, or any other amount, to invest today, I highly recommend taking a closer look at must-own FTSE 100 income stock Next (LSE: NXT).
Over the past few years, this company has managed to navigate the hostile retail environment quite successfully. Its shareholders have benefited substantially as a result. Indeed, the group has an impressive track record of returning a large percentage of its profits to investors.
And it doesn’t look as if the FTSE 100 group is going to slow down anytime soon.
FTSE 100 income stock
Next has been able to succeed where many other retailers have failed this year. Over the past five years, the company has been investing hundreds of millions of pounds in its online operation. It has rolled out a new website and built new warehouses.
As a result, online sales as a percentage of overall sales have increased rapidly. They now account for more than 50% of group sales, although this has increased over the past few months.
Thanks to this foresight, the FTSE 100 giant has been able to leapfrog competitors in 2020. Its large store base also gives the group a competitive advantage. Customers can return clothes bought online to its physical stores. This streamlines the whole returns process and allows Next to get the items back on sale as soon as possible.
Unfortunately, despite the company’s competitive advantages, the coronavirus pandemic has impacted Next’s sales. In March’s economic lockdown, the firm was forced to close all of its operations for a short period. This closure, as well as higher costs, will hit the group’s bottom line by 60% this year, according to current analyst projections.
However, the company is projected to recover next year. Analysts are forecasting earnings of 384p per share for 2021. That puts the stock on a forward price-to-earnings (P/E) ratio of 15.7.
As well as this relatively attractive valuation, the stock could also offer a dividend yield of as much as 2.6%. That’s excluding any special dividends.
Next has a history of paying special dividends to investors when profits surge. When these distributions are included, the yield has jumped to as much as 5-6% in the past.
The bottom line
Overall, while Next has encountered some challenges this year, the company looks as if it’s on track to make a strong comeback in 2021. As such, I think now could be an excellent time to buy the stock ahead of the recovery.
Next is one of the best retailers in the country. It is miles ahead of many competitors, and this should help it grow in the foreseeable future. As the UK economy bounces back from the pandemic, this could mean it is one of the best investments to own to play the recovery. The company’s impressive dividend track record also makes it a top FTSE 100 income stock.
