Rather than going for some of the FTSE 100’s biggest and most well-known names, I reckon it can pay to consider investing in some of the Footsie’s smaller firms. Here are two I like with dividend yields over 4% and market capitalisations around the £5bn level. Although in London’s lead index, they are minnows compared with the likes of BP with its almost £108bn market capitalisation.
Home improvement supplies
B&Q and Screwfix owner Kingfisher (LSE: KGF) describes itself on its website as an “international” home improvement company with 1,331 stores in 10 countries across Europe, Russia and Turkey.
One of the reasons I like the share right now is that a new chief executive is due to start in the autumn, and I think new top management can bring with them a period of positive change if they arrive with vigour, determination and insight. I also like Kingfisher’s dividend. With the recent share price at 222p, the yield runs just below 5% for the current trading year to January 2020, and the price-to-earnings multiple is about 10.
I think the valuation looks undemanding but reflects the flat trading we’ve seen from the firm for a few years. In May, with its first-quarter update, the firm reported sales up 1.7% in constant currency. Perhaps the new chief can find a way to drive further growth from where we are now. If not, that dividend income could keep piling up for shareholders anyway.
Corrugated and plastic packaging supplier DS Smith (LSE: SMDS) delivered a pleasing set of full-year results in June. Chief executive Miles Roberts said in the report that the outcome demonstrated the firm’s “growing scale and strategic progress in key markets.”
He explained the firm is gaining market share “throughout” Europe particularly with customer-companies who produce fast-moving consumer goods. And in the US, operations are going well after a recent acquisition. Indeed, the firm has a strategy designed to grow the business both organically and via acquisitions.
Roberts said the firm has a differentiated offering that combines well with solid underlying demand for corrugated packaging. Despite uncertain general economic conditions, the outlook is positive.
Meanwhile, with the share price close to 383p, the shares change hands on a forward-looking price-to-earnings ratio of just over 10 for the current trading year to April 2020. The anticipated dividend yield runs close to 4.5%. I think the valuation looks attractive.
I admit these aren’t the most exciting enterprises on the stock market, but I think the dividend payments could combine with steady operational progress to produce decent total returns over the next few years. Sometimes dull-looking businesses can produce decent returns. I’d be happy to add both stocks to my diversified retirement portfolio today with the intention of holding for the long haul.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended DS Smith. 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.