High-yield dividend stocks are a cornerstone of many long-term portfolios, offering regular income alongside the potential for capital growth. On the FTSE 100, several companies consistently deliver above-average yields, making them especially appealing for those seeking passive income or defensive exposure during volatile market periods.
Unlike growth shares, which rely on price appreciation, dividend stocks reward shareholders with recurring payouts — which many people reinvest to compound returns over time. For investors with a long-term outlook aiming to build a passive income portfolio, the attraction is clear — but not every dividend share is created equal.
To identify undervalued opportunities with long-term sustainability, investors need to look beyond the yield alone. Two key valuation tools I use are the price-to-earnings (P/E) ratio and the P/E growth (PEG) ratio. A low P/E ratio may indicate a stock is undervalued relative to its earnings, while a PEG ratio below 1 suggests that the company’s earnings growth is not fully reflected in the current share price.
Combining these with a strong yield can highlight stocks offering both income and upside potential. Here are two shares I’ve identified that I believe have potential this year.
The mining conglomerate
Rio Tinto (LSE: RIO) is one of the world’s largest mining groups with a substantial market capitalisation of £77.7bn. The stock is currently trading with a low P/E ratio of 8.04 and a PEG ratio of 0.7, suggesting it may be undervalued relative to its expected earnings growth.
Most importantly, it has an excellent dividend yield of almost 7%. This makes it an attractive income stock, supported by strong cash flows from iron ore and copper production.
However, its performance is closely tied to commodity prices and global demand, especially from China. Any slowdown in industrial activity or regulatory intervention in key markets could pressure earnings and future dividends.
It also operates in multiple jurisdictions, including Australia, Canada and Africa. Changes in government policy, tax regimes or environmental regulation can impact operations or ramp up costs.
Still, as one of the highest-yielding undervalued stocks on the FTSE 100, I feel it’s one worth considering in 2025.
The struggling advertiser
WPP (LSE: WPP), a global advertising and marketing group, has a smaller market cap of £6.25bn and has suffered negative price action lately. The stock is down 30% in the past year.
However, at 6.81%, it offers a similarly strong dividend yield to Rio. Its P/E ratio of 11.7 already suggests room for growth, but the extremely low PEG ratio of 0.03 indicates substantial earnings growth not yet priced into the shares.
This could reflect market scepticism about the sustainability of that growth amid structural challenges in the ad industry. Traditional advertising channels, such as TV and print, are in decline. While WPP is investing in digital transformation, it faces strong competition from tech giants like Google, Meta and Amazon, which dominate the digital ad space.
Nevertheless, WPP’s global client base and investments in digital transformation may support long-term returns. Key risks include economic downturns, which often lead to cuts in corporate advertising budgets, and ongoing competition from tech platforms.
With a potential lack of investor confidence suppressing interest, it now trades at an attractive price. I think this, coupled with the high yield, makes it worth considering this month.
