While the FTSE 100 may have made strong gains in recent months, there are still a number of stocks that offer income returns of over 5%. As such, now could be a good time to buy them for the long term.
FTSE 100 dividend stocks could, of course, help investors to overcome a rising State Pension age. Since the State Pension currently amounts to just £8,767 per year, obtaining a second revenue stream from income-producing assets could become a priority for many.
With that in mind, here are two FTSE 100 income stocks that could offer wide margins of safety, as well as bright investment outlooks.
Rio Tinto (LSE: RIO) has performed well in recent months, with its share price rising 17% since the start of the year. It’s been buoyed by changing investor expectations regarding US interest rate rises. A lack of inflationary pressure means the prospect of the Federal Reserve raising interest rates may have fallen.
This is good news for the mining sector, since it could mean the world economy experiences further growth, while commodity prices may remain appealing if the dollar fails to strengthen over the medium term.
With Rio Tinto having a dividend yield of around 5%, it could offer income investing appeal. Certainly, it lacks the resilient business model of many of its FTSE 100 index peers. But trading on a price-to-earnings (P/E) ratio of around 12.5, it seems to offer a wide margin of safety. As such, now could be a good time to buy in for the long run.
The last couple of years have been a time of major changes for global advertising business WPP (LSE: WPP). It has a refreshed strategy under a new CEO, which has caused disruption to its financial performance and also to investor sentiment.
Although its share price has ticked up in the last few weeks, it’s still down by 24% in the last year. As a consequence, it trades on a P/E ratio of just 8. This suggests it could offer significant recovery potential.
Its new strategy is expected to boost its net profit growth in the current year after a decline last year. Over the medium term, a focus on efficiency and its core operations could lead to a more robust financial outlook.
Since WPP has a dividend yield of 6.3% at present, its income investing potential appears to be high. Dividends are due to be covered twice in the current year, which suggests they’re sustainable at their current level.
As with Rio Tinto, WPP lacks a track record of resilient performance. But with a low valuation and what appears to be a sound strategy, it could generate improving income performance. As such, it could be appealing for investors who are concerned about the long-term prospects for the State Pension.
Peter Stephens owns shares of Rio Tinto and WPP. 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.