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Why the BP share price and 6.4% yield make it my bargain of the FTSE 100

Over the last five days, the FTSE 100 has fallen by nearly 6%. Many of the most popular shares owned by private investors have been affected.

But although it can be uncomfortable seeing the value of your portfolio fall day after day, I’m not worried. I see this as an opportunity to top up my holdings at more attractive prices.

For example, in October 2018, the BP (LSE: BP) share price hit a 52-week high of 604p. At that level, the shares offered a dividend yield of 5.5%. Less than a year later, the share price is down by 15% at 513p. At this level, BP stock yields 6.4%.

I’m pretty sure that BP is the same company today it was 10 months ago. After all, this is a 110-year old global business with sales of nearly $300bn. Oil and gas prices might be a bit lower than they were last year, but they’re still well within the company’s planning range.

Earnings forecasts for the stock are largely unchanged too, compared to last October.

What could go wrong?

Of course, there’s some political noise going on. But BP has handled much worse over the years. I don’t expect events in the next few years to cause too many problems.

My only real concern is the group’s net debt, which reached $46.5bn at the end of June, up from $38.7bn one year ago.

This is a little higher than I’d like to see, thanks to last year’s $10.5bn acquisition of US onshore oil fields from BHP. But payments for this acquisition are now completed and BP’s cash generation remains strong. Finance boss Brian Gilvary expects the group’s gearing to fall over the next year, and I don’t see any reason to doubt this.

In my view, the BP share price looks like a good buy for investors looking for high-yield income stocks.

A quality income play?

BP isn’t the only FTSE 100 stock where I think share price falls have created a buying opportunity. Consumer goods group Reckitt Benckiser (LSE: RB) has fallen by 9% over the last week after the company cut its sales growth target for 2019.

The group’s half-year results showed like-for-like sales growth of just 1%, prompting the firm to cut its full-year guidance from 3%-4% to 2%-3%.

At first glance, Reckitt may seem like another mature business with minimal growth prospects. But I don’t think this is true.

Firstly, the company owns a portfolio of valuable consumer brands such as Dettol, Durex and Nurofen. These still command strong sales and enable the group to generate an operating profit margin of about 24%.

The second attraction for me is that RB is currently organising itself into two structurally independent businesses, Health and Hygiene Home. Many analysts think this could be preparing the ground for the company to split itself in two.

In my view, this business could be worth more as two smaller, more focused firms. I’d expect the healthcare business, in particular, to attract a premium valuation.

Reckitt stock doesn’t look overly cheap, on about 17 times forecast earnings. But the 2.8% dividend yield should be covered twice by earnings and offers growth potential. In my view, this business still has good long-term growth potential. With a new boss coming on board shortly, I think now could be a good time to buy.

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Roland Head has no position in any of the shares mentioned. 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.