It is somewhat surprising that after the FTSE 100 has experienced a decade-long bull market, there are still stocks that offer wide margins of safety. However, such was the negative impact of the financial crisis that the FTSE 100 started its current bull run from a low base, while it continues to offer good value for money on a yield of around 4%.
As such, now could be a good time to buy a range of dividend stocks. Here are two prime examples, with both stocks offering 5%+ yields as well as significant growth potential in the long run.
British American Tobacco
The tobacco sector has been highly unpopular over the last few years, with investors becoming increasingly cautious about falling global cigarette volumes. British American Tobacco (LSE: BATS) has also been impacted by the prospect of tougher regulations in its key US market, where it has been mooted that legislation regarding nicotine levels may be passed over the medium term.
As a result, the stock has declined by 27% in the last year. this means that it now trades on a price-to-earnings (P/E) ratio of just 9.3. This is exceptionally low, with the stock having had a rating of nearly double that amount in recent years.
With the popularity of reduced-risk products continuing to increase, the future for British American Tobacco may be more positive than investors are currently pricing in. Since the stock has a dividend yield of 7.3% from a payout that is covered 1.5 times by profit, its income investing potential seems to be appealing. As such, even though it is highly unpopular, now could be a good time to buy it.
As uncertainty regarding the UK’s economic future has remained high in the last couple of years, commercial property stocks such as British Land (LSE: BLND) have seen their share prices come under pressure. In the last year, for example, the real estate investment trust (REIT) is down by 10%. This means that it now trades on a price-to-book (P/B) ratio of 0.6, which indicates that it offers a significant margin of safety.
Of course, the London property market is weak at the present time. It could continue to see falling prices over the medium term as Brexit causes investors to adopt a cautious mentality. However, in the long run London and the rest of the UK continues to offer growth potential, while investors may have factored in the risks that the stock currently faces.
Since British Land has a dividend yield of 5.3%, it continues to offer an impressive income outlook. As ever, the property market works in cycles. At the present time, it is experiencing a downturn that could last for a number of months. However, from a long-term perspective it is during such periods that the most appealing buying opportunities generally arise. As such, now could be a good time to buy the stock.
Peter Stephens owns shares of British American Tobacco and British Land Co. The Motley Fool UK has recommended British Land Co. 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.