Some sectors have been less hard hit by the impact of Covid-19 than others. While industries such as airlines have been battered and there’s little prospect of planes being full of travellers anytime soon, other sectors have seen demand hold up. Smokers, for example, are still buying cigarettes. While markets are still uncertain, I’m keen to invest in shares that are likely to keep paying dividends so I can reinvest that income into more shares.
Demand holding up
Tobacco companies are among the highest-yielding companies on the FTSE 100, alongside the oil majors. British American Tobacco (LSE: BATS) shares yield 7%. For those looking for income as a priority, they also pay quarterly, which is potentially a consideration.
Financially, BATS is performing well. In its most recent full-year results, revenue rose 5.6% to £25.8bn while operating profits rose 6.6% to £11.1bn. Given the well-known decline in tobacco volumes, this is an impressive performance. It comes from a combination of increasing cigarette prices along with rising sales of vapour and heated tobacco products.
There’s also the potential that a reported vaccine the group is working on might produce results. This could be an unexpected source of income. If nothing else, this shows how the group is moving away from a reliance on declining cigarette volumes.
Overall, the shares appear to be cheap, trading on a price-to-earnings ratio of less than 10.
Another FTSE 100 share set to keep paying dividends
Despite government pressure and rival Aviva scrapping its dividend, the insurer and asset manager Legal & General (LSE: LGEN) has so far vowed to pay out its dividend. Like other dividend payers such as Unilever and Tesco, it likely reasons that small investors benefit from the pay-out and it’s worth doing, as long as it is affordable.
There’s no doubt the yield is very high at over 9%. Partly though this is down to the share price falling sharply this year. The shares are down 40% in 2020.
On a P/E of six, they look to be very cheap. If the economy recovers quickly they could accelerate, fast. Especially as in the latter half of 2019, the share price was really taking off.
Legal & General is another business that is financially performing very well. Its latest full-year operating profit increased 12% year-on-year to £2.1bn.
The group is positioned attractively in growing markets such as retirement and pensions – an area that is only becoming ever more important as the population ages. Legal & General is increasing its exposure to bulk annuities overseas, in places like the US and Canada. These are stable markets that offer compelling long-term growth potential.
Both these businesses are continuing to pay dividends and make a lot of money. With the shares so much cheaper than they were at the start of the year, now could be an ideal time to invest at a reduced price.