The best opportunity of a lifetime to buy FTSE 100 shares is coming. Among the cream of the crop is the 8% yield dividend share I’ll look at today. It has three major things going for it: strong fundamentals, an extremely attractive valuation, and the cash flow to support its huge dividend payment.
Analysts at investment house Jefferies wrote in a 21 March report that “indiscriminate selling” has made some high-quality shares unfeasibly cheap. Their best-buy list includes shares that are “practically stealing” at current prices.
They include Amazon — whose stock will rise as fewer people go out to shop — US biotech giant Gilead Sciences, and the largest defensive play in America, McDonalds.
These are “high quality names that investors would want to own across a [down] cycle,” the report said.
Best buy FTSE 100 shares
Of the handful of FTSE 100 shares to make the list is one that is now trading at a cheap price-to-earnings ratio of 7 times earnings. It has an 8.6% yield at last count. I’m talking about British American Tobacco (LSE:BATS). Investors should avoid its biggest rival Imperial Tobacco, in my opinion, because BATS has the more attractive long-term outlook.
CEO Jack Bowles said in full-year results released on 27 February that “strong operational performance” was the reason why his firm had managed to deleverage its balance sheet. I’m certain that debt-heavy companies will fail in this unprecedented market crash.
At a time when high-yield FTSE 100 giants like Royal Dutch Shell are slashing billions from their budgets and others suspend or slash their dividend payouts, BATS has increased its own offering by 3.6% to 210p per share. This comes with a 1.5 times dividend cover, too.
Revenue was up also 5.7% in 2019. Looking ahead, Bowles said that even with the market disruption he was confident of a 9% earnings growth increase in 2020.
Income coming in
Income investors are having a torrid time right now. Monday, 23 March, saw more popular FTSE 100 companies suspend or review their dividends. They include broadcaster ITV, bus operator Stagecoach, and the Screwfix and B&Q owner Kingfisher.
I don’t have to tell you that a near-30% discount in the British American Tobacco share price compared to two months ago seems like a big opportunity. That 8%+ yield will compound nicely as share prices recover.
As I wrote a few weeks back, the best time to buy FTSE 100 shares to make you money in the long term is at the point of maximum pessimism. I don’t think we’re quite there yet. So I’m waiting for markets to stabilise before putting money down. Central banks are throwing the kitchen sink at the coronavirus-hit economy right now. The US Federal Reserve has just committed to unlimited bond-buying to shore up shaky markets.
But when we start to see the green shoots of recovery, this 8%+ yield UK dividend share is right at the top of my list.
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Tom Rodgers owns no share 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.