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Why Barclays isn’t the only FTSE 100 4%-yielder I’d buy today

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The Barclays (LSE: BARC) share price has been falling for a decade, with the bank repeatedly failing to convince investors it’s on the road to a sustainable recovery.

Last week’s first-quarter results were a good example of this. The shares dropped about 4% on the day in response to a mixed set of figures which showed a fall in profits at the group’s investment bank.

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Were the numbers really that bad?

If Barclays was a highly-rated growth business with a steep valuation, I think Thursday’s results would certainly have justified a sell off. But the reality is the shares are already in the bargain basement. I think the bank is being quite harshly judged.

Although the group’s net profit fell 7% to £1,084m during the quarter, costs were lower too. Overall, this Q1 performance suggests to me the bank is still on track to meet analysts’ forecasts for a net profit of more than £4bn in 2019.

Bad debts were lower than during the final three months of last year and the bank’s tangible net asset value per share rose 4p to 266p. At a share price of about 165p, this means Barclays’ stock is trading at a 40% discount to book value. Combine this with a forecast dividend yield of 4.5%, and I think the bank’s shares offer real value.

Although you may need to be patient, I think Barclays’ shares represent a great long-term buying opportunity. I wouldn’t expect to lose money from this level.

I like this firm even more

Although I think Barclays looks too cheap, the bank’s turnaround status still carries some risk for investors.

One company I believe could be a safer choice in today’s market is FTSE 100 defence firm BAE Systems (LSE: BA). Shares in the firm have fallen by more than 25% since last summer due to concerns about exports to Saudi Arabia. However, I think this sell-off has gone too far.

Although the large and lumpy nature of some of BAE’s big contracts means profits can be uneven, I feel this business has a great track record as an income stock. The dividend payout hasn’t been cut for 20 years, and has doubled during this period. Although the shares haven’t been great performers, I don’t think this matters for a long-term income investment.

Record order book

BAE’s order backlog rose by 25% to $48.4bn last year, a new record for the firm. To put this into context, it’s equivalent to nearly two years’ work, based on 2018 revenue.

The group’s operating profit margins look attractive too, at about 10%. Cash generation varies from year-to-year but is generally good over long periods, providing support for the dividend and keeping debt levels low.

When BAE’s shares hit 650p last summer, I was priced out of this stock. But with the price now sitting close to 500p, I think this could be a great opportunity to build a long-term holding. At the time of writing, the shares were trading on 11 times 2019 forecast earnings and offering a 4.7% dividend yield.

I reckon that’s a good entry point for income seekers. I hope to add some shares to my own portfolio at this level in the coming weeks.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.

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