Three FTSE 100 high dividend stock opportunities

UK high dividend stocks

A browse through the highest yielding stocks in the FTSE 100 right now reveals an interesting list of names. It’s fair to say that many high dividend stocks come with an element of risk attached to their dividends.

For example, there’s BP and Royal Dutch Shell, offering yields of 6.9% and 6.7% respectively. But are those dividend yields sustainable with oil prices around the $50 mark? Then there’s HSBC Holdings at 5.2%, which had dividend coverage of just 0.14 times last year. And BT Group on 5.4%, which has had its own set of problems, releasing a profit warning back in January. Life is certainly not easy for income investors at the moment.

So what are the best FTSE 100 high dividend stocks right now?

Here’s a look at three high yielding stocks I like.

Legal & General Group

The first dividend powerhouse that I like is insurer Legal & General Group (LON: LGEN) (LGEN.L). The stock made both my August dividend ideas and September dividend ideas lists.

Legal & General paid out dividends of 14.4p for FY2016, which at the current share price, equates to a yield of a high 5.7%.

While the company cut its dividend during the Global Financial Crisis, the dividend payout has been increased for seven consecutive years now, and in the last three years has been increased by 21%,19% and 7%. City analysts forecast growth of 6% for this year and next, meaning that the FY2018 payout could potentially yield 6.3%.

Earnings of 23.6p per share are expected this year, which results in a dividend coverage ratio of 1.55 times  – a level significantly higher than many other FTSE 100 high yield stocks currently enjoy. The stock trades on a forward looking P/E ratio of just 10.8 at present, which looks very reasonable, in my view.

Imperial Brands

Imperial Brands (LON: IMB) (IMB.L) has been a true dividend champion over the years.

Indeed, the tobacco giant has increased its dividend payout from 34.5p to 155.2p over the last 15 years, meaning that the investor who bought the stock 15 years ago at around 1,100p, would now be receiving an incredible dividend yield of approximately 14% on their purchase price.

Tobacco stocks are no doubt out of favour at the moment. The US Food and Drug Administration (FDA) announced recently that it plans to lower nicotine levels in cigarettes, and the market clearly has doubts over the long-term profitability of the company.

However, Imperial has raised its dividend by 10% for the last eight consecutive years now, and plans to continue raising the dividend by 10% for the “medium term.”

The company recently stated in its half-year results:

We expect to deliver another year of 10% dividend growth, in line with our commitment to growing shareholder returns.”

Dividend coverage this year is expected to be 1.57 times, and the stock currently trades on a forward looking P/E ratio of 11.9. Sentiment is low right now, but I believe the company can continue to deliver decent dividend payouts going forward.

ITV

Lastly, another stock that has high dividend appeal at present is ITV (LON: ITV) (ITV.L).

The share price has drifted down over the last year from above 200p to around 160p today, and at the current share price, the yield is now a healthy 4.5%. Over the last three years, the company has lifted the dividend payout from 3.5p to 7.2p and also paid some extremely generous special dividends to shareholders as well.

Sentiment towards the stock has clearly taken a knock recently, as a result of Brexit concerns and increasing uncertainty in the advertising market. However, with the company raising its dividend by 20% last year, there could be a disconnect between ITV’s fundamentals and market sentiment.

The dividend payout is expected to rise to 15.6p this year, a yield of 5.1%, and coverage should be around 1.9 times. On a forward looking P/E ratio of 10.3, I like the risk/reward profile here.

Disclosure: Edward Sheldon, CFA owns shares in Legal & General Group and Imperial Brands.  

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.

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