The stock market dip looks like a brilliant opportunity to invest in FTSE 100 income stocks as dividend yield are going through the roof.
A quick search shows 10 UK blue-chips that are yielding between 8.24% a year and a blockbuster 10.83%. That absolutely smashes the return on cash plus there’s the opportunity for share price growth.
Even better, nearly all of these companies look cheap today, after a year in which the FTSE 100 has struggled to make headway. We’re going through a tough time and the pain isn’t over yet as interest rates may have to rise further to curb inflation.
It’s quite a list
When rates peak, today’s undervalued UK companies may swing back into favour, giving investors capital growth as well as dividend income. Personally, I think it’s a brilliant opportunity, and have been taking full advantage. I now own four of these 10 high-yielding dividend stocks myself. In fact, there are very few that I wouldn’t buy.
Three FTSE 100 stocks now yield more than 10%. Usually, that level of income triggers alarm bells, as it may not be sustainable. Yet one of them is wealth manager M&G, which yields 10.59%, and I’ve bought its shares twice in the last year (and hope to buy more).
I reckon its dividend could well survive, plus there’s scope for share price rises when market sentiment recovers. I’d say the same for insurer Phoenix Group Holdings, which yields 10.06%. I’d buy that, but I already hold M&G and another insurance/asset manager Legal & General Group. That yields 9.11% and I’m wary of getting over-exposed to the insurance sector.
That’s the one thing stopping me from buying insurer Aviva that also appears in my list of top 10 income stocks courtesy of its 8.39% yield.
One double-digit yielder doesn’t tempt me. I wouldn’t buy Vodafone Group, despite its blockbuster 10.83% payout. The share price has been steadily sliding for decades and I fear new broom CEO Margherita Della Valle may take a knife to the dividend. That’s what I’d do.
I’ve taken a chance on housebuilder Taylor Wimpey though. It was only a small position because it’s risky as house prices wobble. But I plan to buy more on future dips. It yields 8.6%.
So many to choose from
I bought mining giant Rio Tinto last October, when it was yielding almost 12%. It subsequently slashed its dividend in half, but the yield has climbed back to 8.24% as the share price falls. I’m keen to buy more when I have the cash. Troubles in China are throwing up a buying opportunity.
I don’t own tobacco stocks but that’s a personal decision rather than investment one. Otherwise I would snap up both British American Tobacco and Imperial Brands, which yield 8.41% and 8.01%, respectively.
There’s a second FTSE 100 super-high yielder I wouldn’t touch today (after Vodafone). Asset manager abrdn is the only one of my list to have a double-digit P/E valuation, which is currently 15.3 times earnings. It’s been freezing its dividend lately, which worries me.
Dividends are never guaranteed. If the stock market falls further, these shares could get cheaper still and maybe never rise. That’s the risk of investing. But I see brilliant value among dividend stocks today, and that’s why I’m buying them.