The Motley Fool

Forget 1.5% from an easy-access savings account. I’d buy these FTSE 100 stocks yielding 5%+

With investors all over the world neglecting UK equities at the moment, valuations across the FTSE 100 remain low, in general. That’s great news for dividend investors, however, as it means there are some fantastic yields available from well-known large-cap stocks at present.

Today, I’m looking at two FTSE 100 stocks that currently yield over 5%. I believe that both offer strong long-term value and excellent income potential.

Legal & General

Legal & General (LSE: LGEN) remains one of my top FTSE 100 dividend stocks, for several reasons. First, there’s its high yield. Last year, the company paid investors a dividend of 15.35p per share, which equates to a yield of a high 6%. And this year, investors can expect an even higher yield, as analysts are forecasting a payout of 16.4p per share, which translates to a prospective yield of 6.4%. When you consider that the median forward yield across the FTSE 100 is 3.8%, LGEN offers bang for your buck.

Next, there’s the recent growth of the dividend. The group did cut its divi during the Global Financial Crisis (as did many other financial services companies) yet, since then, it’s lifted its payout strongly, notching up eight consecutive increases. Analysts expect further increases, going forward. Then there’s a solid level of dividend coverage, at 1.5 times last year, indicating that the payout is possibly more sustainable than the payouts of other high yielders in the FTSE 100.

Moreover, Legal & General has a diversified income stream and, as a key player in the ‘bulk annuity’ market, there’s plenty of potential for growth in the years ahead. Just recently, in August, the group advised that it was confident that it’s “strongly positioned for growth in H2 and beyond.”

With the stock trading on a forward P/E of just 8.7, I see considerable value here.

Schroders

Another FTSE 100 stock yielding over 5% that I believe offers decent value and a reliable income stream is Nick Train-owned investment manager Schroders (LSE: SDRC). I have a preference for its non-voting shares (ticker SDRC), as these shares trade at a lower valuation and therefore offer a higher yield. Last year, Schroders paid out a dividend of 113p per share, equating to a trailing yield of 5.1% on the non-voting shares. This year, analysts expect a payout of around 113.8p per share, taking the prospective yield to 5.2%.

Three things I like about Schroders, from a dividend-investing perspective, are its longer-term dividend track record, its recent dividend growth, and its dividend coverage levels. Unlike Legal & General, Schroders didn’t cut its dividend during the Global Financial Crisis, which is the sign of a high-quality company. And over the last decade, the group has increased its payout by 277%, which is a fantastic result for income investors. Furthermore, coverage has consistently been around two times, suggesting there’s a solid margin of safety.

One risk to the investment case here is the rise of passive (ETF) investing, as Schroders is an active investment manager. Yet given that it runs many specialised, niche funds, and has a good overall performance track record, I believe that the company can continue to thrive alongside passive investment managers. 

With the non-voting shares trading on a P/E ratio of 9.9 (11.7 for the voting shares), I see value on offer at present.

Want To Boost Your Savings?

Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.

The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?

Edward Sheldon owns shares in Legal & General Group and Schroders. The Motley Fool UK has recommended Schroders (Non-Voting). 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.