With the FTSE 100 having a dividend yield that is in excess of 4%, there are numerous income investing opportunities available to investors at the present time.
While the index may face an uncertain near-term outlook, for long-term investors there could be a wide range of opportunities available that deliver high returns in the coming years.
Here are two prime examples of large-cap shares that may deliver impressive income returns. They may have experienced periods of uncertainty in recent years, but could produce improved performances.
The performances of tobacco companies such as Imperial Brands (LSE: IMB) have been highly disappointing over recent years. While they once offered consistent growth in earnings, regulatory changes and the introduction of next-generation products such as e-cigarettes have caused a significant amount of disruption.
This has left investors feeling unsure about the outlook for the wider industry as cigarette volumes decline and the market for e-cigarettes is subject to regulatory risks. As such, Imperial Brands now trades on a price-to-earnings (P/E) ratio of just 7.2, while its dividend yield is 10.6%. These figures suggest that investors have priced in a wide margin of safety, which may mean that the company’s risk/reward ratio is highly favourable.
Looking ahead, a new CEO could make changes to Imperial Brands’ strategy in the coming months. Furthermore, an evolving backdrop for the wider industry may mean that the outlook for the tobacco sector changes. With the company focusing on growing its next-generation products and still having a strong position in the cigarette segment, it could produce a brighter financial performance than is currently being priced-in by investors. As such, now could be the right time to buy a slice of it for the long term.
Another FTSE 100 share that offers a high dividend yield at the present time is utility company National Grid (LSE: NG). Its recent results highlighted the progress it is making with its strategy. The company is on track to deliver £50m in cost savings in the UK, as well as $30m in cost savings across its US operations, in the current financial year.
It has also delivered solid profit growth, which could help to increase its dividend payments over the medium term. At the present time, National Grid has a dividend yield of 5.2%, which is relatively high compared to its historic average. That’s despite the company’s shares having gained a boost following the general election, with the threat of nationalisation now having gone.
While utility stocks such as National Grid are unlikely to offer strong capital returns, their defensive characteristics could become increasingly popular among investors. The world economy faces numerous short-term risks, such as a trade war, and this may mean that investors seek lower-risk stocks in the coming months. As such, investing in the company and obtaining a relatively high yield could prove to be a sound move.
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Peter Stephens owns shares of Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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 2020