The Motley Fool

Hurry! Time is running out to buy these FTSE 100 stocks yielding 8%

Image source: Getty Images.

Two of my favourite FTSE 100 dividend stocks are Next (LSE: NXT) and Imperial Brands (LSE: IMB) because they both have a history of returning almost all free cash flow to investors. 

And today I’m going to explain why I believe you should move quickly to include these FTSE 100 income champions in your portfolio before the opportunity vanishes. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

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

Standing still 

Over the past few years, both Next and Imperial have faced some severe headwinds to growth, which has put investors off both companies. 

Indeed, according to my research, over the past five years shares in Next have declined by 21%, underperforming FTSE 100 by nearly 28%, while shares in Imperial have underperformed by 3%. 

However, these figures only tell half the story. Both are FTSE 100 income champions, and if we include distributions to investors, the returns are far more impressive.

For example, according to my figures, over the past five years Imperial has produced a total annual return (including dividends) for investors of 6.4%, compared to just 5.2% for the FTSE 100. Investors in Next have seen the value of their holdings stand still, which is disappointing but still better than the capital loss they would have received excluding dividends. 

So, for the past five years, both of these firms have been treading water, but I think 2019 could mark a turning point.

Time to buy? 

As the fashion retailer struggled to adapt to the shift to online shopping between 2015 and 2018, Next’s earnings hardly budged. It earned 413p per share in 2015 and 418p in 2018. 

City analysts are expecting this trend to come to an end in 2019. They have pencilled in an increase in earnings per share of 4%. As Next has a history of both meeting and beating City targets, I wouldn’t be surprised if the group performed better than expected in 2019. 

In the meantime, the company is returning virtually all free cash flow to investors through both dividends and share buybacks. According to my research, the stock’s current total yield, (the overall amount of cash being returned to investors) is 8.8%. And I should also point out the firm has a history of paying special dividends to shareholders on top of the regular distribution. 

Investments set to pay off

Meanwhile, Imperial has been dealing with different, but not dissimilar, problems over the past few years. 

After several years of stagnating earnings, efforts to reduced costs and invest in new products are set to pay off in 2019, analysts believe. The City has pencilled in earnings per share of 274p for the year, a high watermark for the firm and more than enough to support the projected dividend of 200p per share. 

Right now, the stock is changing hands at just 9.2 times forward earnings. But I reckon as the year progresses, and the company’s growth starts to shine through, the stock will re-rate substantially as it has historically commanded a valuation 30% higher than current levels. 

And you’ll be paid to wait for the recovery, as the stock currently yields 8%. 

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns shares in Next and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.