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Why I’d ignore buy-to-let and buy these cheap 5%-yielding dividend stocks instead

Buy-to-let has made millionaires of many investors in previous years. The steady rise in home values in recent decades has enabled landlords to consistently raise rents as well as to enjoy a steady appreciation in the value of their assets.

The tide has well-and-truly turned though. The political and economic considerations of Brexit have killed of the stratospheric rises in home values, for one. Stamp duty increases and stricter mortgage underwriting rules have also hammered buy-to-let enthusiasts over the past couple of years.

And the attack on the sector from politicians on both sides of the Commons divide continues to intensify. Earlier this week, prime minister Theresa May told the Conservative party conference that she wants to hike stamp duty for foreign investors buying up British homes. The outlook isn’t much rosier for UK landlords, as Labour would roll out a range of measures from capping rents to improving renters’ rights should they get elected.

Those 5% yields

The incendiary topic of housing is proving to be an increasingly important consideration for voters, and particularly for millennials for some of whom home ownership is a pipe dream. The environment is likely to get more and more hostile for landlords.

Quite why anyone would put themselves at the mercy of this toughening landscape, when there are plenty of brilliant FTSE 100 dividend shares that can deliver brilliant returns, escapes me.

Take ITV (LSE: ITV). The broadcaster has been crimped by strained advertising budgets in recent times, but the future looks extremely rosy. It is investing vast sums in its ITV Hub and channel branding to attract more and more viewers. Just as exciting is the outlook for ITV Studios — the company is targeting growth of 5% over the next few years, and I am tipping its production arm to keep swelling long after this, helped by additional acquisition activity.

My Foolish colleague Edward Sheldon recently commented on the huge capital reserves you need to get a foot on the buy-to-let ladder. But investing in ITV doesn’t cost the earth: at the present time it can be picked up on a forward P/E multiple of 10.5 times, comfortably below the accepted value realm of 15 times and below.

With the company also carrying monster dividend yields of 5% and 5.1% for 2018 and 2019 respectively, it’s pretty hard to ignore right now.

Emerging market mammoth

There are cheap dividend heroes to be found outside the Footsie, needless to say, and one of them is Banco Santander (LSE: BNC).

Right now dividend yields at the Spanish bank sit at 5% for 2018 and 5.5% for next year. The bank looks to be in great shape to meet current payout projections too, thanks to its positive earnings outlook and solid balance sheet. Its phased-in CET1 capital ratio of 10.98% as of June smashes the ECB target below 9% by no little distance.

In terms of value, the banking behemoth carries a prospective P/E ratio of just 8.9 times. In my opinion this makes it a bargain given the brilliant profits long-term opportunities the firm has in the developing regions of Latin America. In this territory, attributable profit (at constant currencies) leapt 26% year-on-year from January to June, to €2.2bn.

I wouldn’t rule out further heady improvements either, as the twin catalysts of rising population levels and increasing personal affluence levels drives demand for financial products. 

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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.