2 top Footsie dividend stocks I’d buy right now

I’ve been banging on about what an income-seekers paradise it is out there in the FTSE 100 as dividend yields reach multi-year highs and the obvious thing to do is spread your money across the companies offering the biggest yields. But I reckon there are some bargains to be found among lower-yielding stocks whose prices are also depressed.

Media slump

One is advertising and PR supremo WPP (LSE: WPP), which has suffered a painful year. its shares have slumped from 1,900p in February 2017 to 1,240p at the time of writing. That’s a drop of 35%, from a company which once looked like it could do no wrong.

It’s partly down to the shock departure of founder and longstanding chief executive Martin Sorrell in April, following allegations of personal misconduct and misuse of company assets (which he denies). As the longest-serving chief executive of a FTSE 100 company up until then, the thought of WPP without him sent shivers down investors’ spines.

Yet Warren Buffett has famously warned us not to rely on a single top boss, but instead to examine the fundamental nature of a company. And in WPP, I reckon I’m still looking at something good, despite a forecast 25% drop in earnings this year.

The media world is in a tough patch right now, and Q1 results did show a challenging start to the year. Revenue was down 4% to £3.56bn, though a lot of that was due to currency movements, and constant-currency net debt rose by £354m. But the company also enjoyed new business of $1.74bn in billings, and felt able to return £145m in share buybacks during the quarter.

Well-covered dividends are forecast to yield 4.7% and 4.9% this year and next, with the shares on P/E multiples of 11 and 10.4. That looks oversold to me.

Health and ethics?

Investors have been fleeing British American Tobacco (LSE: BATS) too, and its shares have lost 30% over the past 12 months.

That’s pushed the prospective P/E based on 2019 forecasts down to 12, and the forecast dividend yield for that year as high as 5.7%. The 2019 dividend would be covered by earnings approximately 1.5 times, and I see that as plenty adequate for such a strongly cash-generative company earning high margins — the firm’s operating margin is expected to rise to 39% this year.

Maybe some of the fall has been for ethical reasons as people want to avoid the poisonous herb, and maybe there are fears for the developed world’s increasing shunning of cigarettes. Then again, defensive stocks (of which British American Tobacco is surely one) have been suffering as investors have been swarming back to big oil stocks and miners — all the money that’s pushing them up had to come from somewhere.

On the fundamentals front, the firm looks to be doing fine. Adjusted organic revenue last year rose by 2.9% on a constant-currency basis (and by 6.5% at actual exchange rates), leading to a bottom line adjusted EPS up 9.9% (14.9% constant). And the dividend was hiked by 15.2%. 

EPS growth should slow a little over the next couple of years, but rises of 5% and 8% still look good to me. With the company’s cash-cow nature and its solidly progressive dividend, I really do see BATS shares as irrationally cheap at the moment.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.