While the price of Bitcoin may have surged higher in recent months, a number of FTSE 100 shares have posted disappointing capital returns.
Looking ahead, investor sentiment towards such companies may remain weak in the near term. After all, global economic risks remain high, while their near-term growth potential may be somewhat limited.
However, buying unpopular shares while they trade on low valuations could prove to be a sound long-term strategy. They may offer wide margins of safety and, in the case of these two FTSE 100 stocks, relatively high income returns.
Cruise ship operator Carnival (LSE: CCL) has seen its share price experience choppy waters, declining 28% over the last year. It’s been negatively impacted by the continued uncertainty facing the world economy, with bookings in Europe down compared to forecasts.
Furthermore, a change in US government policy towards travelling to Cuba has hurt the financial prospects for the wider travel and leisure industry. Although Carnival has been able to adapt to the changes, in terms of offering customers alternative locations, it’s expected to hurt profitability in the current year.
Following its share price fall, the stock now offers a dividend yield of around 4.7%. Since it’s covered 2.3 times by net profit, its dividend appears to be sustainable at its current level.
Although the stock may prove to be unpopular in the short term as continued macroeconomic weakness affects its performance, over the long run its high yield and the growth potential of the wider industry could lead to improving capital returns.
Another FTSE 100 stock that’s experienced a challenging year is Vodafone (LSE: VOD). It’s declined by 17%, although this includes a recent uptick in its share price.
A change in management means Vodafone is now following a refreshed strategy that includes an aim to simplify and streamline the business. It’s also changed its dividend policy, which includes a rebasing of its dividend. This could prove to be a prudent move over the long run, since it’ll help the business to reduce leverage and invest in its future growth prospects.
Despite a 40% reduction in its dividend, Vodafone has a yield of 5.5% at present. This has the potential to rise over the long term, with the company focused on improving customer service levels in order to more effectively differentiate its offering.
Clearly, the business is at the start of a period of potential recovery under a new CEO. While this may mean it lags the FTSE 100 in the short run, its combination of a high yield and a revised strategy that aims to more effectively utilise its assets and reduce debt could produce a share price recovery over the coming years. As such, now could be a good time to buy the stock.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. 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.