I’d buy these 2 FTSE 100 bargains that still pay dividends
The stock market crash has forced dozens of FTSE 100 companies to stop paying dividends, but not all of them. Some crashing FTSE 100 bargains are standing by their shareholder payouts, and I’d place them high on my buy list.
I’m impressed by any company that manages to continue paying dividends right now, as so many others scrap theirs. It tells me the underlying business remains healthy, still generates cash and is well placed to weather the stock market crash.
Mining giant Rio Tinto (LSE: RIO) offers investors a thumping yield of 6.6%. It is now the fifth biggest dividend stock on the FTSE 100, making up around 5% of total dividends paid, according to research from AJ Bell.
Stock market crash opportunity
The dividend has a decent amount of cover, currently 1.62 times earnings. Right now, the big question is how the global economy performs, as that will dictate demand for the metals and minerals that Rio Tinto produces, and how big a FTSE 100 bargain it is.
China is its biggest customer, and there are tentative signs that its virus-battered economy is starting to recover. Yesterday, Rio Tinto’s chief executive J-S Jaques said that “demand in China continues to recover”. That is encouraging, although he added that the outlook in the rest of the world remains uncertain.
He said Rio’s “world-class portfolio and strong balance sheet” should serve it well in all market conditions. It is particularly valuable amid current stock market volatility. I’m encouraged to see the iron ore price hold steady $84 per tonne, four times its production costs of less than $20, as this is Rio’s main resource. It looks a FTSE 100 bargain buy-and-hold to me.
FTSE 100 bargains to be had
The stock market crash has also driven energy giant SSE (LSE: SSE) into FTSE 100 bargain territory. Its share price has fallen around 25% this year.
Despite the slump, management has yet to cancel the dividend, which currently yields a handsome 6.7% a year. However, it is worth noting that cover is relatively thin at 1.22 times earnings. This stock has been a dividend favourite for years and I was pleased to SSE management stating it is still aiming to hit its target of paying 80p per share, although it will continue to monitor the situation.
SSE has other challenges, such as funding its transition to low carbon energy, but earlier this month successfully raised €1.1bn through five- and 10-year dual tranche eurobonds, which will cover its refinancing and funding requirements for the rest of the year.
It is great to see these two blue-chip companies still paying dividends, despite the stock market crash. There are no guarantees that will continue as Covid-19 takes us into unknown territory. However, these two FTSE 100 bargains still look tempting to me.
The post Stock market crash: I’d buy these 2 FTSE 100 bargains that still pay dividends appeared first on The Motley Fool UK.
Harvey Jones 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.
Motley Fool UK 2020