I’m stunned to find so many top FTSE 100 dividend shares combining sky-high yields with low valuations. I can’t afford to buy them all, so now I’m working my way down my list of targets and these two are hard to ignore.
Mining giant Anglo American (LSE: AAL) trades at a mere six times earnings and boasts a forecast yield of 8.9%, covered 2.4 times earnings. A high yield is a sign of underpowered share price and Anglo American shares have duly plummeted 29.85% in the last three months.
Share price falls, yield rises
There’s nothing I like more than buying a top FTSE 100 stock after it has crashed into bargain territory. This is particularly true of commodity stocks, as the sector is highly cyclical and it’s better to buy at the bottom than the top.
Over one year, Anglo American shares are down 32.33%. This is notably more than rival FTSE 100 miners Glencore and Rio Tinto, which both fell around 10%.
Anglo American’s underlying earnings plunged 30% to $14.5bn last year as inflation drove up costs and production fell. Yet it posted better news last month, with rough diamond sales rising and copper production up 28%.
Fears of a global recession still weigh on the mining sector, and Chinese demand may not be the force it was, but I still think the mining sector offers strong long-term income and growth prospects. Anglo American’s dividend per share has bounced around a lot in the last five years, so it’s not the steadiest income on the index. But today’s uncertainties are reflected in its low valuation.
Phoenix Group Holdings (LSE: PHNX) has a little public visibility and private investors may overlook it as a result. That’s their loss, as they could end up missing out on one of the most generous dividend payers on the FTSE 100. The stock is forecast to yield 8.8% this year, covered 1.5 times by earnings.,
Phoenix makes most of its money by buying up closed pension and life insurance schemes, and running them down on behalf of legacy members. It’s a dry, solid business, that needs continuous acquisitions to grow.
Another income titan
Its share price has performed poorly, falling 19.17% over five years and 4.97% over one year. Hence that whopping yield. However, that leaves it trading at a bargain-priced 6.9 times earnings, plus there’s that yield to consider.
In March, Phoenix posted a hefty pre-tax loss of £2.26bn as assets under administration fell amid turbulent markets. That’s on top of a previous loss of £688m. However, adjusted operating profits did climb slightly to £1.24bn on an IFRS basis, enough for management to increase the dividend by 5%.
In contrast to Anglo American, the Phoenix dividend has been solid, rising steadily from 46p to 50.8p over the last five years.
If I took a full £20,000 ISA allowance and split it evenly between these two stocks, I could expect to generate income of £1,770 in the first year, or £147.50 a month. As ever with dividends, there are no guarantees and they could be cut if cash flows falter.
But if I’m lucky, though, at some point their share prices may pick up from today’s lows. There are risks, but I’m sorely tempted by these two high income dividend shares.
