The FTSE 100 is full of top income stocks, and many of them still look cheap even with the index trading at an all-time high. Here are two that I’d like to buy today.
Trading under its former name GlaxoSmithKline, GSK (LSE: GSK) was a no-brainer income stock for years, but slowly lost its shine. Dwindling R&D spend, a string of oncology clinical failures and its frozen dividend payments all disappointed investors. I reckon the outlook is now brighter.
I’m searching for dividends
Last year’s sale of consumer healthcare business Haleon was seen as a fresh start, allowing the group to focus solely on vaccines and prescription drugs, and siphon off £7bn of debt for good measure (although GSK’s net debt still totals £17.2bn).
Its share price is yet to feel the benefit, but I’m hoping that will change in time. While the FTSE 100 has flown to an all-time high since early October, GSK’s stock is up just 5.86% over three months. Measured over one year, it is down 9.76%.
Earlier this month management reported impressive full-year 2022 sales of £29.3bn, up 13% at constant exchange rates. Operating margins are healthy at 21.9% while GSK boasts a pipeline of 69 vaccines and specialty medicines, with 18 in phase III/registration.
Profits are expected to rise between 10% and 12% this year, yet the share price trades at just 10.4 times earnings, which looks good value to me. GSK’s dividend yield is lower than it was at just 3%, but with cover of 3.2, this should rise over time. I have no direct exposure to the UK pharmaceutical sector, and it’s about time I did.
GSK is now on my buy list and I will aim to make my purchase in the next month or two, whenever I have the cash to spare.
My other no-brainer income stock is Barclays (LSE: BARC), and now could be a good time to buy after the negative market response to its recent full-year results.
The Barclays share price fell 14% due to poor investment unit performance, a rise in debt impairment provisions, and a trading error in the US, where it was fined $360m (£298m) for overselling $17.7bn of financial products.
Investing for the long term
Given that it still incurred the wrath of banking campaigners by posting annual pre-tax profit of £7bn, I’m not worried (even if markets had expected £7.2bn).
With both of these stocks, I’m looking to invest for the long term, by which I mean a minimum of 10 years, and ideally much longer than that.
Over such a lengthy period, the annual ups and downs don’t really matter so much. The entry price does, though, and Barclays looks cheap to me trading at just 5.7 times earnings.
A juicy dividend is even more important, and the stock currently yields a decent 4.2%, nicely covered 4.2 times by earnings. Next year the yield is forecast to hit 5.1%. I expect it to climb higher over time, giving me a long-term rising income stream.
The only thing holding me back is that I bought rival Lloyds Banking Group in November. I need to spread my wings beyond the financial sector, and will buy GSK first.
