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3 FTSE 100 dividend stocks with yields over 5% I’d buy in July

Are you looking for blue-chip stocks with high dividend yields for your share portfolio?

In this article, I’m going to look at three FTSE 100 income picks with yields of at least 5%, that I’d be happy to buy this month.

154 years of experience

Past performance is no guarantee of the future. But when a business has a long and profitable history, I usually see that as a good indicator of future success.

For example, HSBC Holdings (LSE: HSBA) has been financing trade between Europe and Asia and providing banking services for more than 150 years. It’s survived wars, political upheaval and regulatory changes. I’m pretty confident this will continue.

Although the firm’s £134bn market cap suggests that rapid growth is unlikely, I think the share price reflects this. At 666p, HSBA is trading close to its book value of circa 645p. A forecast dividend of $0.52 per share (41p) gives a yield of 6.2%, which is well above the FTSE average of 4.3%.

Given the high yield, a share price gain of just 2% per year would be enough for HSBC to match the long-term average stock market return of 8% per year.

Over the last couple of years, the bank’s profitability has improved, suggesting modest growth may be possible. I rate the shares as an income buy.

Advertising turnaround

The share price of ad giant WPP (LSE: WPP) is still down by nearly 50% from its February 2017 peak of 1,897p. But the group’s shares have risen by 20% so far in 2019, beating the wider market.

Chief executive Mark Read appears to be making steady progress restructuring this sprawling and fragmented business. He’s made a number of disposals, but the big deal everyone is waiting for is the sale of market research group Kantar.

We may not have much longer to wait. In a statement issued on Monday, WPP said it was in talks with private equity group Bain Capital to sell Kantar in a deal that would value the firm at $4bn.

Cash from this deal would enable Mr Read to make a significant reduction in WPP’s debts, cutting interest costs and improving dividend cover. Although concerns remain about ad spending shifting online, my view is that WPP’s services will remain relevant.

With WPP shares trading on 10 times earnings and offering a yield of 5.9%, I think now could be the time to buy for long-term investors.

A contrarian buy?

Tobacco stocks like British American Tobacco (LSE: BATS) are unloved at the moment. Many investors seem to believe that these businesses are doomed to extinction, as smoking levels gradually drop.

This is a real risk, but I think it’s worth keeping in perspective. British American sold 708bn cigarettes last year. Although this was a 3.5% reduction on the previous year, I don’t think demand is likely to disappear soon.

A more immediate concern for me is the company’s debt burden. BATS ended last year with net debt of £43.4bn. That’s a little too high for my liking, relative to operating profits of £9.3bn.

However, high profit margins and strong cash generation suggest that the firm will be able to pay down these borrowings, which are the result of the Reynolds American acquisition in 2017.

Trading on 9 times earnings and offering a covered yield of 7.4%, the BATS share price suggests a gloomy outlook. Any improvement could deliver attractive gains.

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Roland Head owns shares of WPP. The Motley Fool UK has recommended HSBC Holdings. 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.