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

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. 

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%. 

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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.