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An 8% FTSE 100 dividend yield I’d snap up today

I know I keep going on about it, but I really do think the weakness of the FTSE 100 has been throwing up better and better dividend opportunities. Yet as the index is picking up in 2019, the richest pickings are retreating.

The latest Dividend Dashboard from AJ Bell puts this year’s forecast FTSE 100 yield at 4.7%. That’s an excellent yield and nicely ahead of the long-term average. But it’s down from a 4.9% prediction at the start of the year due to an uptick in share prices.

Rising price

By picking stocks with the best yields, you can put together a portfolio that should comfortably beat the index in terms of income, and I’d put Standard Life Aberdeen (LSE: SLA) shares firmly on the list with their forecast yield of 8.4%. Had you bought the shares at their low in February, you’d have been looking at a whopping 9.5% yield. But timing is a mug’s game and I reckon the current price is good value — with a caveat.

Something I like in a dividend stock is good cover by earnings, but Standard Life Aberdeen isn’t showing that. In fact, this year’s predicted dividend would not be covered, and next year’s would be, but only just.

Safety margin

So the dividend could be cut if we don’t see EPS growth over the next few years, but even if we saw a 50% slashing of the annual payout, we’d still be looking at a 4.2% yield — and I’d be seriously shocked if that happened.

Even at current actual dividends, I do expect yields to fall back. The markets were less than impressed by the merger of the old Standard Life and Aberdeen Asset Management to produce the company we see today, and the share price is actually down 24% over the past 12 months. I think that’s oversold.

I see Standard Life Aberdeen as a pick for big (if slightly risky) dividends today, with share price growth tomorrow.

Disjoint 

Next I come to the disjoint I see in housebuilding stocks. Prices have been weak since fears of a housing market slump have been worrying the markets, and it’s not been helped by the economic pressures of Brexit.

My pick, Persimmon (LSE: PSN) has seen its forecast dividend yields soar to 10.8%, and that can surely only mean one of two things — house prices are indeed set to crash, or the market has got it wrong.

With the country in the grip of a chronic housing shortage, I think it’s the latter. My colleague Robert Faulkner has examined the possible market-boosting effect of the Help To Buy scheme — and as it reduces the actual monthly cost of buying a house, it surely has boosted demand.

Low valuation

But even with that fear, I can’t help seeing a P/E of only around 7.5 as being too low. If earnings dropped by 25% without the Help To Buy effect, Persimmon shares would still be on a P/E multiple of around 10. And even assuming a long-term P/E lower than the index average to allow for the cyclical nature of the housing market, I still think that would indicate a bargain price.

I’m seeing another big dividend stock with a safety margin here.

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Alan Oscroft owns shares of Persimmon. 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.