£1,000 to invest in the FTSE 100? I’d buy these 5% yielders for an ISA today

These are two of the best income stocks in the FTSE 100 (INDEXFTSE:UKX) right now, according to Rupert Hargreaves.

| 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.

If you have £1,000 to invest today, then I highly recommend looking in the FTSE 100 for bargains.

Right now there’s a handful of stocks that support dividend yields of 5% or more, above the market average of 4.5%, and today I’m going to cover two of these income champions. 

Fishing for income 

B&Q owner Kingfisher (LSE: KGF) might not be the first company you think of when looking for income champions, but I believe this firm has incredible income credentials. 

At the time of writing, the stock supports a dividend yield of 5.6%. The distribution is covered twice by earnings per share, so there’s plenty of headroom to either grow the payout from current levels or maintain it if profits come under pressure.

On top of this, the stock is currently trading at a bargain-basement 8.9 times forward earnings, which looks cheap at first glance. That being said, like so many other retailers, Kingfisher is suffering from falling sales and earnings. Sales are expected to decline by around 3% this fiscal year, and earnings per share will drop 33%.

That’s what the City thinks anyway. The company’s own figures show that group sales rose by 1.7% using constant exchange rates in the firm’s first fiscal quarter to the end of April.

On this basis, I think there is a good chance the company could outperform expectations. If it does, I wouldn’t be surprised if the stock jumps as a result. Adding to the appeal of this undervalued retailer is the fact that it has a clean balance sheet. At the end of 2018, it reported a net cash balance of £53m.

Turnaround in progress

The other FTSE 100 income champion that I think might be a great addition to your ISA today is WPP (LSE: WPP).

It was one of the most hated companies in the UK’s leading blue-chip index for a while last year. Luckily, sentiment has started to improve recently as the business has outperformed expectations. Analysts were expecting a company to report a 3% decline in sales for its second quarter, but WPP beat the City with a drop of just 1.4%.

It seems the brand’s image isn’t as tarnished as some City analysts initially believed. Several large clients have turned to the group to provide marketing services this year, offsetting client outflows. Cost-cutting and asset disposals are also starting to chip away at group debt. Over the past 18 months, the group has disposed of more than 44 associate companies, with a total value of £3.6bn and closed 68 offices worldwide, cutting 3,100 jobs in the process. 

Even though City analysts are expecting the company’s earnings per share to drop by 4% this year, that will still leave the 6.2% dividend yield covered 1.7 times by earnings per share. Further, with even more asset sales on the cards, WPP’s balance sheet is only set to improve over the next 12 to 24 months, which will add further support to the distribution. A P/E of 9.5 seems to be cheap considering the fact that the company is the largest marketing business in the world.

That’s why I think it is worth considering this FTSE 100 income stock for your ISA today. 

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.

Rupert Hargreaves owns no share 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.

More on Investing Articles

Investing Articles

Prediction: these FTSE 100 stocks could be among 2025’s big winners

Picking the coming year's FTSE 100 winners isn't an easy task, but we're all thinking about it at this time…

Read more »

Investing Articles

This UK dividend share is currently yielding 8.1%!

Our writer’s been looking at a FTSE 250 dividend share that -- due to its impressive 8%+ yield -- is…

Read more »

Investing Articles

If an investor put £10,000 in Aviva shares, how much income would they get?

Aviva shares have had a solid run, and the FTSE 100 insurer has paid investors bags of dividends too. How…

Read more »

Investing Articles

Here’s why I’m still holding out for a Rolls-Royce share price dip

The Rolls-Royce share price shows no sign of falling yet, but I'm still hoping it's one I can buy on…

Read more »

Investing Articles

Greggs shares became 23% cheaper this week! Is it time for me to take advantage?

On the day the baker released its latest trading update, the price of Greggs shares tanked 15.8%. But could this…

Read more »

Investing Articles

Down 33% in 2024 — can the UK’s 2 worst blue-chips smash the stock market this year?

Harvey Jones takes a look at the two worst-performing shares on the FTSE 100 over the last 12 months. Could…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Are National Grid shares all they’re cracked up to be?

Investors seem to love National Grid shares but Harvey Jones wonders if they’re making a clear-headed assessment of the risks…

Read more »

Investing For Beginners

Here’s what the crazy moves in the bond market could mean for UK shares

Jon Smith explains what rising UK Government bond yields signify for investors and talks about what could happen for UK…

Read more »