Financial markets are extremely volatile at present. Investors are on edge. After a strong performance in 2017, the FTSE 100 index fell around 8% between January and March. Higher interest rates, trade wars, plummeting US tech stocks – there are a number of reasons why investors are nervous right now.
However, for those with a long-term view, volatility can bring opportunities. Here’s a look at three FTSE 100 dividend stocks that I believe offer potential right now.
Legal & General Group
Forecast dividend FY2018: 16.3p
Forecast yield FY2018: 6.2%
Forecast dividend cover: 1.6x
Forecast dividend growth FY2018: 6%
Consecutive dividend increases: 8
Forward P/E: 10.2
Strengths: High yield, solid dividend growth streak
Risks: Financial market volatility
Legal & General Group (LON: LGEN) remains a top FTSE 100 pick for those seeking income, in my view.
The £16bn market cap financial services company is anticipated to pay out 16.3p per share in dividends this year, which equates to a high yield of 6.2% at present. The stock goes ex-dividend on 26 April, meaning that if you purchase the shares before then, you’re entitled to the 11.05p per share final dividend payout for FY2017.
Legal & General has strung together eight consecutive dividend increases now and City analysts expect the upward trend to continue in the medium term with 6% dividend increases expected for this year and next. Dividend coverage is healthy and is expected to be around 1.6 times this year.
Recent FY2017 results were solid, with adjusted earnings per share rising 9%. The group advised that it aims to achieve EPS growth of 10% per year, out to 2020. CEO Nigel Wilson stated: “We remain confident that our unique business model, strong management team, collaborative culture, and strategic focus can deliver further growth in 2018 and beyond.”
Trading on a forward-looking P/E ratio of around 10, the shares look attractively valued.
Forecast dividend FY2018: 8.4p
Forecast yield FY2018: 5.7%
Forecast dividend cover: 1.8x
Forecast dividend growth FY2018: 7%
Consecutive dividend increases: 6
Forward P/E: 9.6
Strengths: ITV Studios is performing well, low valuation
Risks: Weak advertising market
I also like the look of ITV (LON: ITV) at the current share price. Sentiment towards ITV (and most advertising-related stocks) has been poor for a while now. And that’s driven ITV’s share price into the ground. The stock’s forward P/E is currently under 10. Is the outlook really that bad?
Sure, the landscape for traditional broadcasters looks uncertain, due to the disruptive technology of services like Netflix and Amazon Prime. Yet, ITV is a much more diversified business than it used to be and now generates 56% of revenues from sources other than spot advertising. Furthermore, its content side of the business, ITV Studios, is performing well, enjoying 13% revenue growth last year.
The dividend is well covered and the prospective yield on offer right now is compelling, at 5.7%.
It’s worth noting that ITV is owned by both Neil Woodford (13th largest holding in his Income Focus fund) and Mark Slater (8th largest holding in the Slater Growth fund), so the stock has the backing of the professionals.
St James’s Place
Forecast dividend FY2018: 48.5p
Forecast yield FY2018: 4.6%
Forecast dividend cover: 1.0x
Forecast dividend growth FY2018: 13%%
Consecutive dividend increases: 10+
Forward P/E: 21.9
Strengths: Strong operational momentum, excellent dividend growth track record
Risks: Financial market volatility, valuation is a little high
Lastly, the dividend yield on St James’s Place (LON: STJ) shares looks quite attractive at present, in my view. In recent weeks, I took the opportunity to add STJ to my own dividend portfolio.
St James’s Place offers face-to-face wealth management advice to individuals, trustees and businesses. Despite the rise in popularity of ‘robo-advice’ in recent years, the demand for personalised face-to-face financial advice does not appear to be diminishing. Indeed, according to St James’s Place, due to the ongoing complexities of pensions, tax, and low-interest rates, the demand for trusted, personal face-to-face advice has “never been greater.” The group recently advised that it believes there are “great opportunities ahead.”
Recent FY2017 were excellent, with underlying cash earnings rising 40% to 53.6p per share. As a result, STJ took the opportunity to hike its dividend by a massive 30%, taking the payout to 42.9p per share. That distribution equated to 80% of underlying cash earnings and the company has advised that going forward, future dividends will be set using this ratio. Looking ahead, City analysts expect a further dividend increase of 13% this year and 16% next year. The prospective dividend yield is currently 4.6%.
The stock is certainly not the cheapest stock in the FTSE 100, however, when you consider the company’s dividend track record, I think the current valuation is justified. The recent share price weakness has provided a compelling opportunity for long-term investors, in my opinion.
Disclosure: Edward Sheldon, CFA owns shares in Legal & General Group, ITV and St James’s Place.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.