Buying dividend shares today may not seem to be a sound idea after the FTSE 100’s recent fall. The ongoing spread of coronavirus may mean that trading conditions worsen, and stock prices continue to decline in the short run.
However, buying undervalued shares with high yields today may boost your long-term financial prospects. They have recovery potential in many cases, and may prove to be attractively priced following their recent declines.
Here are two FTSE 100 stocks with high yields that may offer long-term recovery potential. Buying them now could prove to be a profitable move.
The recent full-year results from ITV (LSE: ITV) highlighted the challenging trading conditions it has faced. Revenue increased by just 3%, while its advertising revenue was 1.5% lower than the previous year. Adjusted net profit moved 10% lower, and this trend could continue in the near term as business and consumer confidence in the UK remain weak.
Despite working hard to become more efficient, expand into new markets and invest in its digital growth, ITV is finding it tough to post meaningful top and bottom-line growth. This trend may continue, since the spread of coronavirus is likely to lead to a slowdown in the UK’s economic growth rate. And with Brexit now a matter of months away, the prospects for the business are challenging.
However, this seems to have been priced-in by investors. The stock now has a price-to-earnings (P/E) ratio of just 6.7, while its dividend yield stands at 9.1%. Both of these figures suggest that the company’s shares offer excellent value for money. While things may get worse before they improve for ITV, its long-term investment appeal seems to be high.
Over the past three weeks, the share price of BAE (LSE: BA) has fallen by around 22%. As a result, the aerospace and defence company now has a dividend yield of 4.6%. Although there are numerous companies in the FTSE 100 with higher yields at the present time, the income growth potential of BAE seems to be relatively high.
It recently made acquisitions that strengthen its growth potential within the defence industry. It may also benefit from rising defence spending over the coming years, while its recent results highlighted the impact of its reorganisation on profitability.
Looking ahead, the stock is expected to post a rise in its bottom line of 7% in the next financial year. Clearly, this figure is likely to change between now and then depending on the impact of coronavirus on the world economy. But with BAE having a P/E ratio of just 10.8, it seems to offer good value for money and recovery potential over the long run. As such, now could prove to be a logical time to buy and hold it for the long run.
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Peter Stephens owns shares of BAE Systems. The Motley Fool UK has recommended ITV. 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.