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The FTSE 100 is falling: three 7% dividend yield shares I’d buy now

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·4-min read
Screen of various price trends, possibly in FTSE 100
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The FTSE 100 is falling today. As I write, the big-cap index is down by around 2%. However, as a long-term investor this kind of short-term movement doesn’t worry me. After all, lower share prices make it easier to find bargain buys.

I’ve been using the market’s weakness to hunt for reliable, high-dividend-yield shares. Each of the three companies I’ve found offers a forecast yield of at least 7%. I reckon all three could be decent value at current levels.

Renewables are driving copper surge

FTSE 100 miner BHP Group (LSE: BHP) is profiting from surging iron ore prices. The BHP share price is at a record high. But what interests me most is that this £120bn business is also one of the world’s largest copper producers.

The price of copper recently hit a new all-time high of more than $10,000 per tonne. I think this could be significant.

Although I’m unsure about the outlook for BHP’s ‘dirty’ commodities, such as coal and iron ore, I reckon demand for copper looks much safer. All forms of renewables and electric vehicles require a lot of copper. If renewable energy usage and electric transportation keep growing, then I think demand for copper will also continue to rise.

BHP is expected to pay a record dividend this year, giving the stock a forecast yield of 7.7%. There’s a risk that 2021 could see earnings peak for miners, but I’d still consider BHP as a buy.

A rising 7.7% yield

My next pick is tobacco giant British American Tobacco (LSE: BATS). The BATS share price has been a poor performer in recent years, but the dividend has been growing. British American’s payout is currently rising by about 4% each year.

With a 7.7% dividend yield available for new buyers today, I think this FTSE 100 stock could be a useful source of income.

This ‘sin’ stock won’t appeal to all investors. But I can’t fault the numbers here. British American Tobacco reported an operating profit margin of 38% last year. The dividend was covered comfortably by surplus cash.

The main risks I can see for shareholders are that tobacco regulations may get tougher, and that smoking rates might fall faster than expected. These are real concerns. But with BATS stock trading on 8.6 times forecast earnings and offering a 7.7% yield, I think the risks are reflected in the share price. I’d buy at this level.

A top FTSE 100 performer

My final pick is FTSE 100 motor insurance group Admiral (LSE: ADM). This business is known among investors for its profitability and consistent returns. Admiral’s share price has outperformed the FTSE 100 over the last five years, gaining 58% while the index has risen by just 13%.

As I write, Admiral shares offer a forecast dividend yield of 8.2% for 2021. That’s unusually high for this business. The reason why is that shareholders are expected to receive an extra dividend payout this year, when Admiral returns the cash from the sale of its Confused.com price comparison business.

Analysts expect Admiral’s dividend to return to normal next year. Broker forecasts currently show the dividend yield falling to 4.9% in 2022.

I don’t know if Admiral will be able to maintain its historic growth rate under new CEO Milena Mondini. But on balance, I think the shares are probably fairly priced at the moment. I’d be happy to buy Admiral for my portfolio.

The post The FTSE 100 is falling: three 7% dividend yield shares I’d buy now appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. 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 2021