Centrica plc isn’t the only FTSE 100 stock yielding over 5%

Three 5%+ yields for FTSE 100 (INDEXFTSE: UKX) income investors to consider in October.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s been a rough time lately for British Gas owner Centrica (LSE: CNA) as the company’s share price has more than halved over the past four years. But despite three consecutive years of declining earnings, the company still pays out a dividend that currently yields 6.4%.

And there’s good news on the sustainability of this payout. Even as the company continues to lose retail customers, down 2.6% year-on-year (y/y) in H1 alone, its plan to dramatically trim costs and reduce its debt load is starting to pay off.

A whopping 9% cut to headcount y/y in H1 led to EBITDA rising a decent 2% to £1,293m while net debt fell 22% to £2,941m. This is only barely within the group’s year-end target range, but falling leverage should keep dividend payouts secure even as the company seeks to turn itself around.

Should you invest £1,000 in Standard Chartered right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Standard Chartered made the list?

See the 6 stocks

However, I’d still be leery about buying shares of Centrica at their current valuation of 12 times forward earnings, which is only slightly below their five-year average, especially as competition from smaller upstarts intensifies.

Is the turnaround on track?

Centrica’s problems are more than matched by Marks and Spencer (LSE: MKS), where a series of management teams have managed to compound sector-wide challenges with internal mistakes. Yet the company still pays out a hefty 5.7% yield that is safely covered by earnings.

New CEO Steve Rowe also has a very sensible plan to return the company to profitable growth: bring its clothing lines back to the basics it was once known for; stop discounting so heavily and frequently; and focus on the one part of the business, grocery, that hasn’t been underperforming. It’s still early days in this plan but initial signs are somewhat positive with full-price clothing and home sales up 7% y/y in Q1 and food sales up a full 4.5%.

Unfortunately, total clothing and home sales still fell as less discounting turned away bargain hunters. But if this turnaround plan sacrifices discounted sales for more profitable full-price sales, Marks and Sparks could be on to something. But with it too early to tell and a staggering £1.93bn of net debt at year-end, I’d wait for further positive evidence before buying its shares.

Saving the best for last

A more interesting high-yielding option in my eyes is Vodafone (LSE: VOD) and its 6.2% yield. The telco is finally emerging from a multi-year £20bn+ infrastructure investment programme across Europe. Now that the heaviest investments are done, the company is just beginning to reap the rewards of faster broadband and 4G services that are drawing in customers.

In the year to March, the company’s service revenue, its preferred metric, rose by 1.9% y/y in organic terms to €42bn, while free cash flow leapt from €1.2bn to €4bn. This level of free cash flow covered dividend payments of €3.7bn and should finally allow the company to begin to put a dent in its €31bn mountain of net debt. While Vodafone’s hefty dividend now looks safe, investors should be wary of the company’s lofty valuation of 27 times forward earnings.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

Here’s why Tesla stock just rocketed 22.7%! Is it time to buy?

This writer wonders whether the news that sent Tesla stock soaring yesterday is a true gamechanger for the electric vehicle…

Read more »

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Are Tesco shares a screaming buy after sinking to 9-month lows?

Tesco shares continue to experience price weakness as signs of mounting competition grow. But is it now too cheap to…

Read more »