The FTSE 100 currently supports an average dividend yield of 4.5%, but around a third of the index’s constituents offer yields above this level.
Today I’m going to highlight three of these stocks, which all support dividend yields of more than 6%.
My first yield pick is mining giant BHP (LSE: BHP). In August, the group announced a record dividend, rewarding shareholders after several years of cost-cutting and efficiency improvements. The company is distributing $0.78 per share on top of the $17bn already returned to shareholders in 2019.
I think it is unlikely BHP will be able to do the same in 2020, as the figures have been flattered by one-off disposals this year. Nevertheless, City analysts believe the company will produce a net profit of $10bn in its current financial year, and they reckon the majority of this will be returned to investors.
Analysts have pencilled in a dividend yield of 6.6% for the year, although considering BHP’s track record of returning cash, I think this could be a conservative estimate. Demand for essential commodities like iron ore and copper is only growing, and BHP is only getting more efficient at mining them, which suggest further profit growth is on the horizon.
Right now you can snap up shares in this cash cow for just 10.5 times forward earnings.
My next FTSE 100 income play is insurance group Admiral (LSE: ADM). Car insurance is a tough business. Customers want to pay the lowest cost possible and insurers are having to pay out more and more to put things right when they go wrong.
Admiral has a track record of outperforming the rest of the industry. It does this with its sector-leading cost ratio and strict underwriting standards. These efforts have helped the company remain consistently profitable while other competitors have struggled.
Management is also branching out into other lines of business such as comparison websites, loans and international car insurance. These diversification efforts only make Admiral more attractive in my eyes.
For 2019, City analysts believe the company will distribute 124p per share to investors, giving a dividend yield of 6.1% on the current share price. Over the past six years, the dividend has grown at a compound annual rate of 14%.
The final FTSE 100 income stock I’m going to profile is marketing giant WPP (LSE: WPP).
Shares in this business have been a pretty poor investment over the past 12 months, falling 15% excluding dividends as investors have fretted about its future potential.
However, after earnings fell 25% in 2018, City analysts are expecting WPP’s recovery to start this year. There are already some signs that the recovery is taking hold. Sales fell by just 1.4% in the second quarter of 2019, outperforming analysts’ expectations of a 3% year-on-year decline. The numbers were also “slightly ahead” of internal expectations.
In my opinion, this progress suggests WPP is more than capable of hitting the City’s dividend targets for the company over the next two years. Analysts are expecting a per share payout of just under 60p, giving a yield of 6.5% on the current share price. On top of this, the stock is changing hands at a forward P/E of just 9.3 — a steal for such a world-class business in my eyes.
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Rupert Hargreaves owns shares in Admiral Group. The Motley Fool UK has recommended Admiral Group. 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.
Motley Fool UK 2019