2 FTSE 100 income stocks I’d buy in February

These two dividend shares could be strong performers in 2017.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The outlook for the FTSE 100 is uncertain so buying high-yield shares could be a sound move. Although Donald Trump’s presidency and Brexit have had a positive impact on the index’s performance, the uncertainty they’re set to create could lead to volatile share prices during the course of 2017. As such, the income return of shares could prove to be a significant part of this year’s total return. With that in mind, here are two dividend shares yielding over 6% which could be worth buying right now.

A stable utility stock

The utility sector is popular among income-seeking investors. It’s not difficult to see why, since business models are generally stable, yields tend to be above average and their defensive characteristics mean they should offer less volatility than most other sectors. Despite this, SSE (LSE: SSE) continues to offer a high yield, which indicates its shares aren’t particularly in demand at the moment.

The stock currently yields 6.3% from a dividend which is covered 1.3 times by profit. And with dividends forecast to rise 2.8% next year, they look set to remain ahead of potentially higher rates of inflation. Although the company’s bottom line is forecast to rise by just 5% this year and 6% next year, a price-to-earnings (P/E) ratio of 12 indicates there’s significant upward re-rating potential on offer.

This could be highly relevant if uncertainty in the wider market builds in the coming months. Investors could become increasingly risk-off and seek out companies such as SSE, thereby pushing its share price higher. Given its high yield and defensive characteristics, it could prove to be one of the FTSE 100’s best performers this year.

A wide margin of safety

Given the potential for uncertainty this year caused by Brexit and President Trump’s policies, obtaining wide margins of safety when buying shares could be more important than ever. Housebuilder Barratt (LSE: BDEV) currently trades on a P/E ratio of only nine, which indicates that it offers significant upward re-rating potential as well as some downside protection. Furthermore, its yield of 7.2% is among the highest in the FTSE 100. Even if its shares rise by only a small amount this year, its total return could easily be in the double-digits.

Of course, the outlook for the UK property sector is uncertain. However, recent updates from across the sector have stated that the industry remains buoyant. And since Barratt’s dividend payments are currently covered 1.5 times by profit, the current level of shareholder payouts appears to be sustainable.

In the next couple of years, dividend growth may be lacking if the UK deteriorates as Brexit becomes a reality. However, Barratt’s sound business model and improving financial strength mean it appears to be well-placed to overcome such challenges. As such, now could be a good time to buy it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of SSE. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »