If you have cash on hand to invest in FTSE 100 shares I think there are three outstanding stocks right now.
Perhaps you’re just at the beginning of your investing journey, and you’ve just opened a Stocks and Shares ISA. Or maybe you’re a more experienced investor looking to profit from historically cheap valuations across FTSE 100 shares.
Whatever the reason, if you’re buying now, there are some amazing options on offer. Not only could you benefit in the long term as share prices recover, you’ll collect serious dividend payments to improve your holdings along the way.
I’ve chosen these three FTSE 100 shares in particular as I believe they provide the strongest dividends, cash generation and prospects for the future.
The energy supermajor BP (LSE:BP) is one of the few FTSE 100 shares that has not cut its dividend for 2020. It now offers a 10% yield on a historically low P/E of 19.6.
And while oil prices are languishing, I think BP should not be too badly affected in the long term. Coronavirus has led to incredible demand destruction, with so few vehicles on the roads, planes flying or cargo ships crossing the globe. And there’s still massive overproduction. This created the recent negative oil price situation. But this is necessarily a short-term problem.
So why BP? The energy giant is hugely diversified across renewable infrastructure and has $32bn of cash available to support its operations.
Near-term woes — as evidenced by BP’s 66% profit drop in the first quarter — represent a great buy-in opportunity for investors who can look past day-to-day news and think long term.
I’ve never been in a situation before where I’ve seen BP at these levels. It’s one of the most popular FTSE 100 shares and so was always too expensive for me. That’s all changed now.
Pharma multinational GlaxoSmithKline (LSE:GSK) will go ex-dividend on 14 May. Any investors holding the shares on that date will benefit from a 23p per share dividend. At current prices, that’s around a 4.7% yield. It’s not double-digits, sure, but it’s definitely more than many FTSE 100 shares could provide in 2020.
GSK is helping the UK government to fight the coronavirus pandemic with a new joint testing centre at Cambridge University with Astrazeneca. And it’s targeting a vaccine in production by 2021. But virus aside, it also has a Warren Buffett-style wide economic moat, with its hundreds of trademarked drug brands. This protects it from competition.
It all gives me confidence that cash generation will remain extremely strong at GSK and that its worldwide growth can continue.
British American Tobacco
A dividend yield of 6.8% from British American Tobacco (LSE:BATS) provides a welcome respite from the FTSE 100 shares that have slashed their 2020 payouts.
Institutional investors, some of the richest on earth, have been snapping up BATS shares recently. That includes pension funds seeking solid income at a time when uncertainty is all around.
British American isn’t just responsible for producing traditionally popular cigarette brands, like Lucky Strike.
It also owns a vast network of companies in the US, in South America and across Europe. In fact, one biotech subsidiary, Kentucky Bioprocessing, is working on a plant-based Covid-19 vaccine. It’s a market leader across 50 countries and the second-largest tobacco products business on the planet behind Philip Morris International.
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Tom Rodgers owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.