We live in crazy times whenmany UK leading companies are trading on yields an incredible 28 times base rate. Back in the day, when interest rates typically hovered around 5%, this would have been the equivalent of yielding income of an incredible 140% a year. Dream on.These three top FTSE 100 names yield between5% and 7% but aretheir vertiginousincome levels sustainable?
Slick dividend
Today, oil giant BP (LSE: BP) yields a whopping 7.1%. At this rate of return youd double your money in just 14years from the dividend alone,with all capital growth on top. The share priceis alsoup 26% over the last six months, driven by the oil price recovery since Januarys shocking $27 a barrel low. However, with crudestruggling to holdabove $50, investors cant rely on more to come.
Like all oil sector companies, BP has been slashing costs and canning capex. Itrecently posted a Q2 profit of $720m, down from $1.3bn on year earlier. Management is standing by the dividend, leaving it unchanged at 10p per share. Forecast earnings per share (EPS) growth of a whopping 137% in 2017 should provide some relief after this years no-show, but until oil climbs above$60 and stays there, the dividendremains under siege. Still, even if BP chopped it in half, you would still be getting 14 times base rate.
Hold on to HSBC
Asia-focused bankHSBC Holdings (LSE: HSBA) may have escaped a bailout during the financial crisis but it hasnt avoided subsequent banking stock misery. Itsshare price is trading at roughly the same level it was five years ago, during which time the FTSE 100 has risen more than 30%. However, there has been a post-Brexit revival, with the stock up more than 20% over the last three months.
Its current yield of 7.1% excites and this is better fundedthan many on the FTSE 100 with cover at1.3times. Trading at 11 times earnings, itsvaluation isnt too testing either. Earlier this month,HSBC announced further rewards for loyal shareholders in the shape of a $2.5bn share buy-back, and arenewed commitment to itscurrent dividend of 51 cents. HSBC has been hit by the Asia slowdown but is nonethelessincreasing its focus in this region, which should prove rewarding in the longer run.With underlying profit before tax falling 14% to $10.8bn the turnaround will take time, but the income should make the wait worthwhile.
Setting Standards
Investors in insurer Standard Life (LSE: SL) have had a better much better time of it, with the share price up85% over five years. However, it has retreated over the last 12 months, falling 15% due to wider stock market uncertainty. I called StandardLife an insurer but the truth is its nowa fee-based asset manager, which arguably makes it more volatile and exposed to market shocks.
First-half results show operating profits before tax up18% to 341m, andunderlying cash generation improving 10% to 254m. Standard Lifehas been hit by falling annuity sales but there have been compensationsas more retirees turn to income drawdown. Dividend policy is progressive, withthe payoutrecently lifted 7.5% to 6.47p per share, even though the current 5.1% yield is covered just 0.7 times. My only doubt is that its expensive at 26.6 times earnings, although forecast EPS growth of 92% this year and 10% in2017should help eventhings out.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended BP and HSBC Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
