The FTSE 100 is awashwith stocks trading ondizzying yields of between 5% and 7%but that doesnt mean you shouldignore companies payingmore modest yields of 2% or 3%.The following three may ranklow on theyield league table but still merityour attention.
Smoke without fire
British American Tobacco (LSE: BATS) is the smokers and dividend investors friend, but the yields arent as addictiveas they used to be. This may be one of the most reliable dividend payers on the FTSE 100 but it trails the index, paying 3.26% against an average yield of 3.71%. Theres a good reason for this, and I do mean good. The stock is up 40% over the past 12 months and despite managements progressive values, its clearly hard for the dividend to keep pace with that kind of growth.
Few investors will be complaining, especially with management recently lifting the interim dividend by 4% to 51.3p. The long-term question is whether British American Tobacco can remain resilient in the teethof global anti-smoking trends, but that isnt a worry for now as it continues to grab market share. However, trading at 23.05 times earnings it isnt cheap.
Trenchcoat warfare
Fashion houseBurberry Group (LSE: BRBY) fails to cut a dash with its dividend, which currently yields a less than racy2.81%. The company has struggled over the last five years, with itsshare price upjust 10% against 30% on the FTSE 100, largely due to the slump in Chinese consumer spending. Earlier this year it announced a 100m cost-cutting campaign to offset the challengingluxury market but underlying Q1retail sales of423m were flat although they did rise 4% in reported currencies. Like-for-like sales in China remained unchanged.
Nonetheless, the share price has staged a comeback in the last three months, rising 23% in that time. Part of this may be downto the Brexit bounce, while investors alsocheerednewsof a 100m share buyback programme, to endno later than 18 April 2017. Burberry has a robust balance sheet and famousbrand, and has built a strong digital business with a loyal online following. However, with a pricey valuation of18.9 times earnings andzero forecast earnings per share growth next year, Burberry could remain out of fashion a while longer.
Dear Prudential
Insurance giant Prudential (LSE: PRU) hasmade a brave and successful foray into Asia thathas helped drive the share price, although it has been punished bythe emerging markets slowdown. Theshare price is down around 5% over the last year, which has revived its previously lowly yield, although it remainsunderwhelming at 2.86%.
The valuation is now more attractive, as this once expensive stock is now trading at 10.81 times earnings, and now could be a good entry point.Prudential delivered a 6% rise in first half group operating profits to2bn,with new life division business profit up 8% to 1.26bn at constant exchange rates. Underlying cash generation jumped10% while the dividend rose5% to 12.93p. Thecompany is taking a pause for breath but when Asia starts growing again, Prudential islikely to follow.
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Harvey Jones owns shares of Prudential. The Motley Fool UK has recommended Burberry. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.