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2 FTSE 100 stocks I’d buy with 4%+ dividend yields

As the FTSE 100 races to record highs, income investors are having a tough time finding the meaty dividends that once littered the index. But that doesn’t mean all the choice dividend options out there have gone the way of the dodo.

A bank-beating financial 

One of the most attractive ones out there is subprime lender Provident Financial (LSE: PFG) and its 4.59% yielding dividend. Since 2012, the company has boosted its shareholder payouts by 75%. This is thanks to booming profits driven by steady returns from the core doorstep lending business and the rapid growth of its credit card division Vanquis. In 2016 alone, increased returns from these divisions helped boost overall earnings per share by 9.2% year-on-year and covered rising dividends 1.32 times over.

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Looking ahead there is little reason to believe this stellar performance will be slowing down anytime soon. The company is targeting 15% growth in the number of credit card customers served over the medium term, to 1.8m, while maintaining high credit standards and a low acceptance rate of around 25%. This conservative approach to expanding the customer base should be applauded by investors as it keeps default rates low and profits high.

And while many investors’ knee-jerk reaction will be to dismiss subprime lenders as highly cyclical, this isn’t exactly true. In the midst of the financial crisis from 2008 to 2010, Provident maintained return on equity of above 45% each year and grew profits by double-digits in each of 2008 and 2010. Since the end of the crisis, it has worked hard to refocus its efforts on higher credit customers who are more likely to pay back their loans and thus be eligible for larger, and more profitable, credit lines.

With a long history of raising dividends through thick and thin, a hefty 4.5% yield, rising earnings and a reasonable valuation of 16 times forward earnings, Provident is one FTSE 100 stock I’d own for the long term.

You can’t beat the combo of dividends and growth

Another gem of an income option is GlaxoSmithKline (LSE: GSK). The pharmaceutical giant currently pays out a 4.77% yielding dividend that is covered 1.28 times by earnings.

While annual dividend payouts haven’t budged for the past three years, I believe this could be set to change in the near term as all three of the company’s main divisions kick-into a period of high growth. Last year, core operating profit, which ignores the one-off £9.2bn in profits from the disposal of its oncology business in 2015, grew 14% year-on-year in constant currency terms and a whopping 36% at actual exchange rates.

This rapid growth looks set to continue as a slew of new drug treatments enter the market. Last year alone, sales from new products rose from £1.9bn to £4.4bn year-on-year. And a healthy pipeline, with four new drugs submitted for regulatory approval and a further 10 in phase 2 and 3 studies, bodes well for the coming years.

On top of a return to high growth rates from the pharma business, the vaccines and consumer healthcare divisions are also doing their bit to help. Sales from these two divisions rose 14% and 9% respectively year-on-year in 2016. With all three divisions growing quickly and profits rising by double-digits, I see plenty of potential for dividend growth to match in the future. At 15 times forward earnings and offering a substantial dividend, I reckon GSK is another FTSE 100 income share to own for the long term.

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And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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