The FTSE 100 has roared back into life as confidence across financial markets have improved. Britain’s blue-chip index is now trading just below one-month highs and is 8% off the lows struck earlier in March. Fresh volatility could be around the corner but I’ll still be looking for top FTSE 100 dividend stocks to buy.
Here are two income stocks whose dividend yields have caught my eye today. Each carries a reading that batters the 3.5% forward average of FTSE 100 index.
A near-60% rise in the benchmark Brent oil price has helped the BP (LSE: BP) share price shoot through the roof in 2022. Crushing crude prices have helped boost profits at the oil majors and more strength could be possible as the tragic events in Ukraine (and the subsequent sanctions slapped on Russia) disrupt energy supplies.
Yet despite recent strength, BP’s share price still looks mightily cheap on paper. Not only does the company trade on a forward price-to-earnings ratio of 6.1 times, this FTSE 100 dividend stock boasts a meaty 4.4% yield as well.
Am I tempted to buy BP’s shares then? The answer is a resounding no. It’s my opinion that oil prices have surged beyond what the supply/demand picture suggests they should be. And I think a sharp correction could be around the corner.
Soaring inflation, the war in Ukraine, and rocketing Covid-19 cases in China all threaten the global economy and with it the outlook for oil demand. The situation could get even worse too if a breakthrough comes concerning Iran’s nuclear deal and heaps of new oil enters the market.
I’m also worried about BP’s prospects as the world gravitates away from fossil fuels and towards renewable energy stocks. The FTSE firm has invested large sums to beef up its green energy options. But it still has a long way to go to offset waning oil demand and protect its long-term future.
I don’t need to take a risk with BP when there are so many other cheap stocks to choose from, anyway. Take banking giant HSBC Holdings (LSE: HSBA) as an example. This FTSE 100 dividend stock trades on a rock-bottom P/E ratio of 9.9 times for 2022. Meanwhile its forward dividend yield sits at a healthy 4.2%.
HSBC faces the same threat of declining revenues as the global economic recovery slows. This is particularly so because of its dependence on the current coronavirus hotspot of China. However, this is a risk I’d be happy to accept given its excellent value right now.
Besides, the long-term outlook here remains robust with disposable incomes and population levels in Asia still tipped to grow strongly in the years ahead. With financial product penetration rates here at low levels, there is a world of sales opportunities for HSBC and similar firms to exploit. Analysts at McKinsey & Company believe personal financial assets in Asia will account for two-thirds of the global total by 2025.