These two FTSE 100 stocks offer big dividend yields and low earnings multiples. Which (if any) should investors buy in the coming weeks?
BT Group
BT Group’s (LSE:BT.A) share price is one of the FTSE 100’s star performers in 2023. Yet despite its recent ascent, the telecoms titan continues to offer excellent all-round value on paper.
The company trades on a forward price-to-earnings (P/E) ratio of 6 times. It also boasts a 5.9% dividend yield.
But to me, BT’s low earnings multiples doesn’t represent decent value. It simply reflects an array of risks to current profit estimates. Furthermore, I believe dividend forecasts are in severe danger given the company’s uncertain profits outlook and colossal debts. It had £19bn of net debt in September.
Demand for telecoms services is set to hot up as the world becomes increasingly digitalised. Theoretically this should provide great revenues possibilities for BT.
The problem is that the company faces intense competition in the market. Rival companies including Sky, Vodafone, and Virgin Media have chipped away at its customer base in recent decades. And now its Openreach division faces unprecedented competition as rivals invest in their own infrastructure divisions.
On top of this BT faces extreme regulatory pressures. Just last week Ofcom announced it was launching a probe into whether the firm offered “clear and simple” contract information to its mobile and broadband customers.
Rio Tinto
I believe building a stake in metals producer Rio Tinto (LSE:RIO) is a better choice for investors. It faces significant risks of its own, but I find the long-term investment outlook here highly appealing.
Commodities exploration can be hit-and-miss and disappointments disastrous for earnings forecasts. Mine development problems are commonplace and extremely expensive. Even when production is finally up and running, a range of problems can emerge to take a big bite out of profits.
Industrial action, bad weather and safety stoppages for example can hit production hard and weaken earnings.
That all sounds very negative. However, I still believe on balance that Rio Tinto shares are a great investment. Encouragingly for investors, the company has a great track record at all stages of the mining process. This explains its FTSE 100 listing and position as the third-biggest mining company by revenues. Such advantages are too good to ignore, I feel.
Rio Tinto owns mines, refineries, and smelters in 35 countries. This reduces the risk that problems at one or two projects pose to group earnings.
I also like the miner because of the range of metals it supplies. These include copper, lithium, scandium and aluminium. These are essential materials in the energy transition process, a phenomenon that’s tipped to drive the next commodities supercycle.
Take copper, for instance. Analysts at Citi think red metal demand will rise by 7m tonnes between 2021 and 2030, pushed by a 4.6m tonne increase from the power generation, electric vehicle and grid storage sectors.
Today Rio Tinto shares trade on an undemanding forward P/E ratio of 11.2 times. They also carry a market-beating 5.8% dividend yield. I think it’s a top value stock to buy next month.
