As interest rates plunge to near-zero, top FTSE 100 dividend stocks yielding more than 20 times base rate look more attractive than ever. There’s certainly nothing negative about the following three yields.
Berkeley buzz
Housebuilder Berkeley Group Holdings (LSE: BKG) can’t deny that the last 12 months has been rough, with the share down 26% in that time. Like all of the sector, Berkeley has suffered a post-Brexit blowout, with the share price plunging from 3,285p on 23 June to just 2,492p today, a drop of 24%. The market may think dimly of its prospects but trading at nine times earnings and yielding just over 8% there’s plenty to build on.
There has been little sign of a housing market collapse since the referendum: latest figures from Rightmove may show asking prices falling 1.2% in August but this is partly a seasonal summer blip and they remain 4.1% higher than a year ago. The growing population and urgent housing shortage make it hard to credit Deutsche Bank’s prediction that UK house prices will drop 10%. The Bank of England’s rush to slash interest rates should make mortgage finance even more affordable and prop up demand. If autumn statement stimulus from new Chancellor Philip Hammond includes a housebuilding programme, then Berkeley could be topping out again.
Group therapy
Insurer Legal & General Group (LSE: LGEN) has also had a rough year with its share price down 21%, despite leaping 15% in the last month. Last week it cheered investors by posting a 22% leap in profits before tax to £667m, driven by its annuity arm, which outshone its struggling investment management and insurance businesses. Net cash generation jumped 16% to £727m and the group delivered a 20% return on equity.
Chief executive Nigel Wilson said the group should continue to deliver attractive shareholder returns despite current financial and political uncertainty, as it tapped into long-term growth drivers such as ageing populations, globalisation of asset markets and welfare reform. Trading at 11.46 times earnings the price still looks right, and with its 6.24% yield covered 1.4 times the income should continue to flow. Forecast earnings per share growth of 11% this year and 4% in 2017 make Legal & General a buy for me.
Making its Marks
For what’s partly a fashion company, Marks & Spencer Group (LSE: MKS) has been embarrassingly mismatched for years, with its cutting edge food business overshadowing the clothing arm. It has repeatedly failed to pull off the trick of keeping its conservative customers happy while luring young blood. First quarter results showed the same painful story, with total food sales up 4% and clothing and home sales down 8.3%.
It remains to be seen whether its strategy of shunning promotions will pay off in the long run, but it’s certainly causing short-term pain. Barclays recently predicted a painful transition, warning that clothing price cuts are necessary but will continue to hit like-for-like sales. With food now accounting for more than 50% of group revenue, maybe it should simply give up on clothing. Ahem. Trading at 10 times earnings its problems are priced-in and the 5.4% yield tempts, especially since it’s nicely covered 1.9 times. Forecast EPS falls of 13% this year, followed by 14% and 2% in 2017 and 2018, suggest the high street giant has a long road ahead of it.