The drag on the FTSE 100 continues, more than one month after the drop started. The index closed below 5,000 on Monday for the first time since October 2011. Almost no FTSE 100 share has been spared in the stock market crash. But some shares have lost more than others. Some have seen their value halved (or worse).
For those of us who are heeding Warren Buffett’s advise right now by being greedy when others are fearful, this looks like a good time to buy stocks. Not all stocks hold equal promise though. In fact, we can brace for continued weakness in some of them. But others hold far more potential.
Dividend investing offers rich choices
If we are looking at dividend investing, there’s a wide array of choices available in the FTSE 100 set of shares. The average FTSE 100 dividend yield is 7% and 34 stocks offer a yield higher than this. Of those 34 stocks, 21 offer a yield higher than 10%. The catch to choosing the right share to invest in is finding one that will pay good dividends over the long term.
FTSE 100 defensives offer good dividend yields
FTSE 100 tobacco biggie Imperial Brands (LSE: IMB) looks attractive to me from that standpoint. Its yield is 16.2% and it has a long history of paying dividends. Further, unlike many other companies, it’s less likely to be impacted by the lockdown. Cigarette sales are resilient in recessions and this time doesn’t appear to be different. According to a Reuters report, British American Tobacco has said the coronavirus crisis has had no real impact on its sales. It’s reasonable to expect a similar trend for IMB.
The one hitch here is IMB’s dividend policy. Earlier it offered an annual dividend increase of 10%, but has now decided to link dividends to performance. Additionally, the company expects earnings per share to be “slightly lower” this year compared to last. This means that its dividend performance could be dented. But I suspect the dent may not be very big, eroding its yield and its ability to generate good passive income only mildly.
Continued momentum
Next after IMB in terms of dividend yield is the FTSE 100 British-Swiss miner Glencore (LSE: GLEN). Not only is its yield a high 15.5%, but in an update last week, it mentioned there have been “no material disruptions” so far because of Covid-19.
Glencore has also been upbeat about its prospects recently. In particular, I like that the company stressed that it will maintain dividends in its latest update. If there’s a significant hit to economic activity over the remainder of the year, I think it would be safer to assume that GLEN will see some impact on its operations. But for now and the foreseeable future, I think it’s a good buy.
There are plenty of other FTSE 100 stocks that look quite attractive right now, with yields over 10%. But going by the descending order of dividend yields, IMB and GLEN stand out for me.
