While the FTSE 100’s dividend yield of 4.5% may be appealing at the present time, it is possible to obtain a higher income return from some of the index’s members.
As such, it may be possible for an investor to generate a portfolio yield of over 5% or even 6% by investing in a diverse range of large-cap shares.
With that in mind, here are two FTSE 100 stocks which yield over 5% and that could offer impressive total returns in the long run.
Water services company United Utilities (LSE: UU) has a dividend yield of around 5.3% at the present time. It has a long track record of increasing shareholder payouts, with its business model having proved popular among income-seeking investors in the past as a result of its defensive characteristics.
Looking ahead, the stock could experience greater volatility than in the past. There are threats facing its future from political and regulatory change that could cause investors to adopt an increasingly cautious stance towards it.
However, with a dividend yield that is around 80 basis points higher than that of the FTSE 100, it appears as though investors may have priced in the potential risks which it faces. As such, with it having less positive correlation to the wider economy than many of its index peers at a time when the UK and world economies face uncertain futures, United Utilities could be a worthwhile income investing stock for the long term.
While United Utilities is generally viewed as a defensive stock by many investors, FTSE 100 index peer ITV (LSE: ITV) is a cyclical business. It is highly dependent on the performance of the wider economy, with demand for TV advertising being impacted by business and consumer sentiment levels.
As such, the company has struggled to generate positive net profit growth in the last few years, with its results also being impacted by the rising popularity of digital marketing across a wide range of businesses. This situation could persist over the coming months, with the UK’s economic outlook seemingly highly dependent on the outcome of Brexit.
Recent updates from ITV have shown that the company continues to see rising viewing figures, while the planned launch of BritBox (which is a joint venture video streaming service with the BBC) could help to align the business with changing consumer tastes.
Since the stock trades on a price-to-earnings (P/E) ratio of 7.1, it seems to offer a wide margin of safety. Its dividend yield of 7.5% is covered 1.9 times by profit, which suggests it is sustainable even if the company is unable to deliver strong earnings growth over the medium term.
Due to its cyclicality, ITV lacks the resilience of some of its index peers. But with what seems to be a sound strategy and a low valuation, its return prospects could be highly enticing.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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.