The FTSE 100 achieved one of its best performances since the financial crisis last year. Despite this achievement, there are still plenty of companies in the index that appear to offer value at current levels, especially for income investors.
Today I’m going to take a look at just two of these opportunities.
Recent trading updates from global luxury group Burberry (LSE: BRBY) show that this company’s efforts to return to growth are starting to pay off. Following a period of stagnation, the company replaced its chief designer, and this has already had a strong impact on its top and bottom lines.
Even though sales at its Hong Kong arm declined by a double-digit percentage during the first half of its fiscal year, overall group pre-tax profit for the period still grew 11%. Overall revenues increased by 5%.
One of Burberry’s key strengths is its brand power. The company has built a reputation for quality around the world, which means customers are more than happy to pay a premium to acquire its products. This shows through in the group’s profit margins. For the past five years, Burberry’s operating profit margin has averaged more than 16%.
Healthy cash generation means that the company has scope for dividend growth. The stock currently supports a dividend yield of 1.9%, which is covered twice by earnings per share, leaving plenty of room for payout growth in the years ahead.
Management is also returning cash to investors with stock buybacks. Including these share repurchases, the stock’s total shareholder yield last year was around 4%.
Another FTSE 100 income stock that could pay you for life is industrial engineer Johnson Matthey (LSE: JMAT). Burberry’s best quality as a business is its brand. Johnson’s best qualities are its reputation and engineering skill.
The company is one of the world’s largest producers of catalytic converters. It’s also branching out into battery technology for electric vehicles. Making products for both of these industries requires plenty of care and attention, and customers want quality over quantity. Going with the lowest bidder is a risky strategy because you don’t know what you’ll get.
That’s why Johnson should remain a sector leader for many decades to come, great news for the company’s investors.
The shares currently support a dividend yield of 3.1% with the payout being covered 2.5 times by earnings per share. On top of this, shares in the engineering group are currently dealing at a forward price-to-earnings (P/E) ratio of only 12.8.
As such, it looks as if now could be the time to snap up a share of this world-leading business. The stock appears to offer a margin of safety at current levels. Johnson’s position in the global engineering market should ensure that this company remains a dividend champion for many decades to come.
The post No savings at 40? I’d buy these FTSE 100 dividend stocks for a passive income appeared first on The Motley Fool UK.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Burberry. 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