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2 cheap super-high-yield FTSE 100 shares I’d buy today

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If you’re looking for your next long-term high-yield investment, you’re in luck. Even while stock markets hit record highs there are still some smashing bargains on the FTSE 100 and FTSE 250. These are big dividend-payers and will beat the meagre interest rate on savings accounts or Cash ISAs by a huge margin.

The UK insurance market is the fourth largest in the world. It can support these two high-yield shares, both of which are trading at low valuations right now.

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Aviva

Warren Buffett once said: “It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price“. I strongly believe that Aviva (LSE:AV) fits the first description. It is both the UK’s largest and Canada’s second-largest insurer. It pulls in £11.2bn in gross premiums, while controlling a 17% share of the UK life insurance market and 10% of the UK general insurance market.

Aviva offers an attractive 7.3% dividend on a low price-to-earnings (P/E) multiple of just 10.7. I feel you won’t get a better long-term sustainable dividend in a well run FTSE 100 company. BT may boast 9%+ right now but I think it is in line for a dividend cut because of its multi-billion pound pension crisis.

The Aviva P/E ratio is at historic lows and won’t stay here forever. 2017’s P/E ratio was 31 times earnings. Doubling the earnings per share to 35p saw 2018’s ratio drop to 14. If earnings leap to the 53.2p per share City analysts expect, then next year’s P/E ratio will jump back to 13, and you’ll pay far more per share than you would today.

A small fall in operating profits and pre-tax profits in the last 12 months may be the reason why the Aviva share price is trading between 5% and 10% cheaper than its 432p net asset value per share.

CEO Maurice Tulloch has a progressive dividend policy in place to increase payments per share over the long term. A capital surplus of £11.8bn and £2.3bn of cash will help with that plan while Tulloch cuts debt.

Direct Line Insurance

An annual dividend yield of 6.1% for Direct Line Insurance (LSE:DLG) is enticing, but crucially, it’s not unmanageable. CEO Penny James took over from James Geddes in February 2019 and has continued the company policy of trying to improve payouts to shareholders.

I think investors should see that there’s some safety in numbers here. This is the UK’s fifth-largest insurer, with gross written premiums of £3.2bn and a solid track record. DLG has improved dividends per share for five of the last 10 years while maintaining a good margin of safety, with dividend cover reaching 1.6 times earnings in 2018.

And yet it’s trading at a P/E ratio of 10.25 times earnings. I would suggest that’s very cheap.

As management great Jack Welch once noted, to be successful, companies must “buy or bury the competition”. DLG’s revenue is not just based on the iconic red telephone on wheels, the Pulp Fiction-inspired Winston Wolfe TV ads or the fact that it doesn’t list itself on price comparison websites. It also owns other major insurance brands: Green Flag which it bought in 1998, Churchill, acquired in 2003 and Privilege, which came in-house in the mid-1990s.

This gives it a dependable revenue structure to support the share price over the long term.

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Tom Rodgers owns shares in Aviva. 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.

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