Investors looking to generate an income return in excess of 5% have a wide range of choice within the FTSE 100 at the present time. With the index yielding around 4.5%, there are a number of large-cap stocks with dividend yields that are over 5%.
Certainly, the world economy may be facing an uncertain period. Fears surrounding the US economy and the potential for a widening of tariffs could cause sentiment to come under pressure.
But for long-term investors who are seeking a relatively high yield, these two stocks could offer an impressive outlook.
The housebuilding sector continues to deliver impressive returns, with Barratt (LSE: BDEV) reporting strong demand for new homes. The government’s Help to Buy scheme and stamp duty relief for first-time buyers appear to be providing support to the industry at a time when political and economic uncertainty remains high.
As such, now could be a good time to buy shares in housebuilders. Interest rates are expected to remain at low levels over the medium term, which could make houses increasingly affordable. And, with investors seemingly having priced in the potential risks facing the sector, there may be wide margins of safety on offer.
Barratt, for example, currently trades on a price-to-earnings (P/E) ratio of around 8.2. This suggests that investors are expecting a period of weak performance. However, the company is due to post a rise in net profit of 3% in the current year. This suggests that its strategy is working well, and that it could generate further profit growth over the medium term.
With a dividend yield of around 8%, the stock appears to offer significant income investing potential. As such, now could be a good time to buy a slice of it for the long term.
Severn Trent’s (LSE: SVT) dividend yield of 5% holds appeal even though the wider utility sector faces an uncertain period. Although the company’s recent results have shown that it is making progress from an operational and financial standpoint, investor sentiment may remain changeable due to the political and regulatory risks faced by the wider industry.
This, though, could present long-term investors with a buying opportunity. With the stock trading on a P/E ratio of around 14.8, it appears to be relatively cheap when compared to its historic ratings.
Furthermore, Severn Trent’s business model may be less dependent on the performance of the world economy than some of its FTSE 100 peers. Therefore, should the threat of a global trade war cause world GDP to experience a period of slower growth, stocks with defensive characteristics may become increasingly popular among investors.
This could mean that, as well as a high income return, there is scope for the company’s shares to outperform the FTSE 100 over the medium term.
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Peter Stephens owns shares of Barratt Developments. 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.