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These two FTSE 100 stocks could pay £28bn in dividends for 2021!

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During the market meltdown of March 2020, I started writing again for Fool UK for the first time since 2012. I also saw a once-in-a-generation opportunity to buy cheap shares at bargain prices. My instincts were correct: global stock markets have surged over the subsequent 14 months. The FTSE 100 index today stands at 7,066.45, almost 2,075 points above the close of 4,993.90 on 23 March 2020. That’s a gain of more than two-fifths (41.5%). However, this is thrashed by the over-80% surge in the US S&P 500 index.

I still see deep value in the FTSE 100

Despite the FTSE 100’s comeback, most of its gains took place after Halloween 2020. When three highly effective Covid-19 vaccines were unveiled in early November, share prices skyrocketed worldwide. Among the biggest risers were so-called ‘value’ stocks. These shares trade on low price-to-earnings ratios (P/Es), high earnings yields, and attractive dividend yields. Despite this strong rotation from growth to value stocks, I still see great potential in large-cap FTSE 100 stocks. Here are two I’d happily buy today.

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Manic miners: BHP and Rio Tinto

Due to the rise of ESG (environmental, social and governance) investing, many FTSE 100 stocks have fallen out of favour. These include oil & gas, tobacco, and mining companies. But I see hidden value in these unwanted and unloved shares, particularly among the heavyweights. Take the shares of miners BHP (LSE: BHP) and Rio Tinto (LSE: RIO). These two global mining giants are Goliaths in the field of digging up raw materials. But their shares remain modestly priced, even after powerful gains.

At their March 2020 low, shares in Rio Tinto (‘red river’ in Spanish) had collapsed to around 3,212p. On Thursday, they closed at 6,477p, more than double their low of 14 months ago. This values the group at £106.6bn, making it a FTSE 100 super-heavyweight. In my view, Rio shares are not expensive, even after doubling. They trade on a P/E of 14.8 and an earnings yield of 6.8%. What’s more, their dividend yield is 5.3% (two percentage points above the FTSE 100’s dividend yield).

As for rival BHP, its share price bottomed out at just above £10.50 during Meltdown March. On Thursday, it closed at 2,314p, valuing BHP at £128.3bn. The shares trade on a P/E of 23.3, an earnings yield of 4.3%, and a dividend yield of 5%. Not as cheap as Rio, but still alluring to me.

Why I like these two mega-cap stocks

One factor driving up these two FTSE 100 shares is that raw-material prices are soaring. The price of iron ore recently peaked at $193 a tonne and currently is over $190. Likewise, copper recently spiked above $10,000 a tonne to a 10-year high. Also, since the last ‘commodity super-cycle’ peaked in 2011, these two companies have slashed capital spending to strengthen their now rock-solid balance sheets. Furthermore, BHP and Rio’s 2o21 combined dividends could total $38.2bn (£27.5bn), according to JPMorgan. And who wouldn’t want their share of this torrent of cash, like an ATM on steroids?

These two FTSE 100 shares have come a long way since the mining market’s lows of 2016. But mining is a highly cyclical industry, strongly tied to economic growth. If the much hoped-for multi-year economic boom fails to emerge, then these shares might suffer. But if global consumer spending surges, then the world will need more iron, copper and nickel. On balance, I’d buy both RIO and BHP today to ride the global recovery!

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Cliffdarcy has no position in any of the shares 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.

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