We are currently in a unique economic climate and market movements are hard to read. With the fear of another market collapse looming large, panic selling is a real problem. As we head into October, I am focussing on these two tested, robust FTSE 100 shares with a history of positive financial performance and shareholder returns.
Retail dividend stock
Tesco (LSE: TSCO) has had a decent run in the past six months. Its share price has risen 12% in the period and the grocer is set to release its first-half (H1) results for 2021-22 in October. I think a favourable result could boost its share price over the next few months.
Tesco’s recent revenue growth looks very impressive to me. The supermarket chain’s net income has grown at the rate of 24% in the last five years. This is much higher than the industry average of 8.4%, which shows me a dominant presence in the sector. Analysts predict that the FTSE 100 staple’s revenue could grow 149% in 2021-22. In the first quarter of its current fiscal year alone, sales increased by 9.3% compared to pre-pandemic 2019 figures.
Given the razor-thin margins of the supermarket sector, these fundamentals look very impressive to me. The company also offers a 3.9% dividend yield at its current share price of 255p which is ahead of the FTSE 100 average of 3.4%.
In fact, I think the company has an excellent history of shareholder returns. Tesco’s three-year median payout ratio stands at 53%. UK’s largest grocer also announced a £5bn special dividend in February 2021 after the sale of its Asian operations for £7.6bn.
Although the grocer has the largest market share in the supermarket space, it still faces stiff competition from the likes of Sainsbury’s and Morrisions. Also, the surging popularity of discount retailers like Lidl and Aldi could dent future revenue. But, I am still confident that a strong financial report in October could boost its share prices significantly, which is why I’m watching Tesco shares closely in October.
FTSE 100 insurer
I think Aviva (LSE: AV) shares look extremely cheap at the moment. At 401p, Aviva is trading at a profit-to-earnings (P/E) ratio of 9.1 times, which points to an extremely undervalued share. Combined with an impressive 5% dividend yield, this looks to me like a great FTSE 100 value option.
Sustained economic recovery could immensely benefit the insurance sector. Also, Aviva has been restructuring its business over the last 12 months to focus more on key markets like the UK, Canada, Ireland, and China. The insurer sold non-core operations in Turkey and France, which could bring in £7.5bn. As a result, a £4bn shareholder payout was announced starting with a £750m share buyback.
Analysts expect Aviva shares to hit 800p by 2024, which could significantly boost its current dividend yield. This is backed up by an impressive H1 2021 showing where operating profits went up 17% to £725m.
The company faces competition from the likes of Legal & General and Prudential. Also, unstable economic conditions and fear of a market crash could strongly affect the finance sector. But, Aviva still earns a spot on my list of FTSE 100 shares to buy in October given its renewed focus on key markets and strong history of shareholder returns.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons, Prudential, and Tesco. 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.