IAG share price valuation

The IAG share price is currently sitting at 155p. It’s currently trading off of a price-to-sales (P/S) ratio of 1.63. This is significantly lower than competitors easyJet and Ryanair, who trade off P/S ratios of 4.15 and 9.54 respectively. This shows me that IAG stock may be undervalued at current prices.

A slightly worrying point is that the firm’s enterprise value (EV) has actually increased since before the pandemic. EV is calculated by adding together the firm’s market cap and net debt, showing how much someone would theoretically have to pay to buy the business outright. At the end of 2019, IAG’s enterprise value was about £16.5bn. Today it is just below £20bn. This signals the business is valued a lot higher than in 2019, even though flight numbers and revenues have decreased.

However, this does not worry me. The main reason this number has increased is because IAG added £3.8bn of debt to its balance sheet during the pandemic. This was a theme across most of the aviation industry, with easyJet also forced to take a £1.4bn debt package. TUI followed a similar path, finishing 2020 with over £6.5bn in net debt. The fact that all of these firms will have seen significant jumps in EV makes me believe that the IAG share price may still offer good value at current levels.

Pushing higher

IAG’s half-year results did show some encouraging numbers. Q2 passenger capacity was only 21% of 2019 levels, but this is expected to rise to 45% for Q3. In addition to this, IAG has a strong cash position of £8.5bn. Both of these numbers point towards a rising IAG share price in the near future.

However, many analysts have stated they don’t believe the aviation industry will fully recover until 2024. Many countries like the US, Australia, and New Zealand still have strict Covid-19 travel restrictions. As British Airways makes most of its business from long-haul flights, these continued restrictions are likely to stifle future growth. 

Overall, I think the IAG share price offers some good value at current levels. However, this doesn’t mean there is not further to fall. In a few years, I think we could see a good recovery and the IAG share price will be significantly higher than where it is now. In the short term though, I am not convinced this is a buying opportunity.

The post The IAG share price is falling: should I buy in now? appeared first on The Twelfth Magpie.

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Dylan Hood 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.

None of this has stopped me from continuing to buy growth stocks for my own portfolio though.

Contrarian growth stock

After sitting on the sidelines for a while, I’ve finally grabbed the bull by the horns and snapped up shares of online holiday firm On the Beach (LSE: OTB).

Devoid of the high fixed costs endured by larger peers such as TUI, OTB’s flexible, online-only business model ensures it has minimal cash burn while travel restrictions remain in place. A recent £26m share placing also gives the company sufficient financial firepower for a big marketing push when rules are relaxed and demand for holidays explodes.

This isn’t to say that taking a position now is without risk. Those restrictions will likely be in place for a while yet. Moreover, the barriers to entry into this market aren’t particularly high.

Nevertheless, the progress of vaccination programmes leads me to think that the risk/reward trade-off is far better than it used to be. OTB’s share price is also down roughly 40% since March. This gives me what I feel to be a decent margin of safety. I’ll be continuing to drip-feed my money into this growth stock over the next few months. 

Buying the dip

I simply couldn’t finish July without adding to my stake in fast-fashion giant Boohoo (LSE: BOO). A bumpy ride over the last month, not helped by a poorly-received update from industry peer ASOS, looks to be another opportunity to acquire this growth stock at a great price.

The 20% fall in Boohoo’s value over the last six months leaves its shares changing hands for less than 26 times earnings. I think that could prove to be a steal once the company puts its ESG (Environmental, Social, Governance) concerns to bed. The negative publicity will hopefully lessen as BOO demonstrates what it’s done to put things right with its supply chain.

Sure, there are other potential headwinds. Confirmation of an online sales tax could send the shares lower, as might a simple lack of news over the next month. However, some knockout interim numbers in September may arrest this fall. Evidence that recent acquisitions are bearing fruit would provide another boost. 

Investing megatrend

My last buy this month has actually been an investment trust rather than a single company stock.

I began buying Biotech Growth Trust (LSE: BIOG) in April. Unfortunately, its shares have drifted lower since then. Reasons could include the ongoing rotation from growth stocks into those appearing to offer more value. There might also be a belief that healthcare-related funds have had their time in the sun.

Notwithstanding this, I’m confident BIOG’s managers — many of whom are medically trained — know what they’re doing. An annualised return of 17% over the last five years is far better than the trust’s benchmark. Then again, this has been at the expense of greater volatility, As such, those with weak stomachs need not apply.

Given the rate of technological progress, this area could be one of the investment themes for years. I think a diversified trust like BIOG is the best way to play it.

The post 3 UK growth stocks I’ve been buying in July appeared first on The Twelfth Magpie.

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Paul Summers owns shares in On The Beach, boohoo group and Biotech Growth Trust. The Motley Fool UK has recommended ASOS, On The Beach, and boohoo group. 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.

Recruitment specialist PageGroup (LSE: PAGE) has weathered the pandemic in good shape, given the impact on the jobs market. The stock lost half its value in last year’s March crash, but has been a strong recovery play since.

The PageGroup share price is up 44% over a year, although it still trades around 7% lower than three years ago. However, the top FTSE 250 stock is up a thumping 9.99% this morning, after CEO Steve Ingham reported “increased confidence in our outlook for the year” and predicted full-year operating profit of between £90m and £100m.

The PageGroup share price tempts me

PageGroup has demonstrated the importance of geographical diversification, as gross profits in the Asia-Pacific region raced ahead of Europe and the US, growing 15.3% and by a thumping 45% in China. By contrast, US profits fell 9% and UK profits 11%.

March was a record month in Germany, Italy, Spain and South East Asia, despite continued and increasing Covid restrictions. PageGroup looks solid with net cash of £136m, up from £83m in Q1 last year.

I can see why this is the top performing FTSE 250 stock this morning. Assuming the global economy recovers this year, PageGroup looks a good way to play it.

My biggest concern is that the recovery is priced in after strong share price growth, while lockdowns have returned in a number of the group’s markets. Today’s jump could be premature. Gross profit may be up 31% on a year ago but it is still down 2% on 2019. However, I remain optimistic.

I’m not so sure about the travel industry though. I’ve been wary about taking a punt on this ravaged sector, although some bargain hunters have benefited. Vaccine hopes have driven the sector higher in the last six months.

I’m not buying this top FTSE 250 stock

Europe’s largest travel company TUI (LSE: TUI) is up 108% in the last six months. However, investors are running for cover today.

The TUI share price is down almost 7% after the Anglo-German travel group announced it will issue up to £350m of convertible bonds to boost liquidity as Covid travel restrictions drag on. The bonds will pay between 4.5% and 5% a year, until April 2028. 

This is TUI’s second fundraising of the year. In January, it raised €545m from shareholders in a €1.8bn financing package agreed with the German government, banks and its biggest shareholder, Alexey Mordashov.

While TUI is among the top performing FTSE 250 stocks in the last six months, I’m staying grounded. The group expects peak summer capacity to be 75% of 2019 levels this year, but that looks optimistic given continuing restrictions.

I could be unduly pessimistic. There is massive pent-up demand for travel, and bookings will go crazy when restrictions ease. Recent investors have been rewarded for their bravery, while this year’s fundraising should help TUI weather short-term storms. I still think PageGroup is the safer recovery play.

The post I’d buy one of these top FTSE 250 stocks today, but I’m shunning the other appeared first on The Twelfth Magpie.

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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.

Not only is this a great return for early holders, it also increases the odds of the company striding into the FTSE 100 when the next reshuffle occurs in March.

Given this, should I be rushing to buy the stock? I’m not so sure.

FTSE 100 bound?

Now, don’t get me wrong. There are lots of things to like about Dr Martens as a company. First and foremost, it makes a lot of money, shifting more than 11 million pairs of shoes annually.

In the last financial year to 31 March 2020, the business made £672m in revenues. Whether consumers appreciate DM styling or not, it seems many shoppers are attracted to the quality and durability of its shoes. 

Dr Martens is also nicely geographically diversified. Nearly half of sales come from Europe, the Middle East and Africa and a little over a third from the Americas. The remaining revenue is generated from the Asia-Pacific region. This kind of earnings spread isn’t a guarantee of continuing success, of course. However, it should make the company more resilient compared to one that operates solely in one part of the world.

The potential for Dr Martens to enter the FTSE 100 should do its share price no harm either. Those funds specialising in tracking the top tier of the market will then be required to buy the stock. This may temporarily boost the company’s valuation even higher. 

Even so, I’ve a few nagging concerns.

Reasons to be bearish

The first of these relates to the competition Dr Martens faces. While the brand is clearly valuable and long-lasting, it’s just one among many. Moreover, its popularity has waxed and waned over the years. Anecdotally, I last bought a pair of boots several years ago and haven’t ever felt the need to ‘upgrade’. As a potential investor, this lack of repeat business would concern me. 

I’m also put off by the fact that — variations aside — it remains a ‘one product’ company. By contrast, fast-fashion giant Boohoo now has multiple brands under its belt, no stores to maintain, and is preparing to enter new markets such as beauty and sports. Despite these attractions, Boohoo currently has a lower market capitalisation than Dr Martens! 

I also don’t think it would be right to buy a company’s stock solely on its potential to enter the FTSE 100. Truth be told, this promotion might not even happen. At the time of writing, Dr Martens faces stiff competition from the likes of holiday firm TUI, Royal Mail and engineer firm Weir Group for a spot in the top tier. Even if it were to emerge victorious, the huge rise seen in the share price since coming to market may bring forth a bout of profit-taking.

Walk on by

Dr Martens has had a storming start to its time as a listed company. Notwithstanding this, a lot of promise and good news already looks firmly priced in. As someone who’s wary of frothy-looking valuations and IPO fever in 2021, I’m content to walk on by for now. 

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Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended boohoo group and Weir. 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.

Indeed, TUI ‘s share price exploded 75% in two days, leaving IAG’s 30% share price jump looking relatively small by comparison.

The share price increases were due to growing investor confidence in travel firms upon the loosening of some European coronavirus lockdown restrictions. However, they now appear to be landing again.

Will these firms be grounded permanently or are they bargain buys ready for take-off?

The future for air travel

The coronavirus pandemic is the biggest ever crisis facing the aviation industry. Passenger numbers dropped almost overnight and revenues plummeted, leaving gaping holes in company financial statements.

Some investors will be betting on the UK Government making up some of this lost revenue. Indeed, this is possible for a flag carrier like British Airways, a subsidiary of IAG, and an important player in the UK’s economic security. But, for an integrated holiday travel firm such as TUI, this is far less likely.

On the flip side, tours are expecting to begin again from 1 July. However, whether people will want to travel is unknown. In any case, many folk can’t afford missed holidays, and health concerns are also likely to dominate thinking.

Airlines aren’t renowned for their hygiene standards. This could work out in TUI’s favour as holidaymakers may choose to cruise instead of fly. In any case, there’s no sign of returning to prior long-distance air travel volumes anytime soon.

This could affect IAG’s long-haul reliant business model. Yet, its Austrian-based Level service could prove a sound investment. Indeed, short-haul flights may rebound more quickly due to assets being smaller and cheaper to fly.

IAG and TUI share price fundamentals 

Based on current figures, TUI may run out of money before the autumn. Its depressed share price makes equity funding unrealistic so it will be looking for finance elsewhere. By comparison, IAG is well capitalised, improving its odds of survivability.

However, the recent drop in the oil price hit IAG’s profits. The decrease in price added a £1.1bn exceptional charge to the firm’s costs. This charge related to fuel and foreign exchange hedges but the group was already into the red prior to this announcement.

TUI, on the other hand, may receive a cash injection from Boeing in compensation for its grounded Boeing 737 Max fleet. It can also push back delivery dates on newer aircraft, allowing cash to be used for short-term survival. However, the grounded Boeing fleet has eaten into revenues and threatens to again in the future. 

Even if TUI does survive in the short term, long-term investors will be wary of its €1.8bn loan from Germany’s state bank. A politically charged loan could make funding dividends unfeasible and its grounded fleet won’t help regain its previously strong market position from its competitors.

Entrepreneur Richard Branson once declared if you want to be a millionaire you start with a billion dollars and launch a new airline. He should know. Airlines struggle at the best of times, let alone after an imposed shut down. For me, TUI and IAG are temporarily grounded.

The post IAG share price vs TUI share price. Grounded, or awaiting take-off? appeared first on The Twelfth Magpie.

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Rachael FitzGerald-Finch 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.

So, which of these battered top-tier stocks, if any, is the best buy right now?

FTSE 100 bargains?

A lack of earnings guidance makes applying traditional valuation methods tricky at best, and redundant at worst. There’s also no need to discuss dividends, since all of the above have shelved payouts. With this being the case, we need to adopt a more qualitative approach. 

Strengths include all three being established heavyweights. In a sector that could see multiple smaller operators go out of business, this should ultimately mean less competition. All three FTSE 100 constituents have also been proactive in reducing costs (although, sadly, it looks inevitable the some furloughed workers will eventually have their jobs cut).  

On the flip side, all still have sizeable fixed costs they can’t avoid, such as ongoing maintenance of their assets. They also have significant amounts of debt on their balance sheets. 

Keep your distance!

Grounding planes and the like will only get you so far, of course. The ability of the three companies to recover rests on several things beyond their control.

Chief among these is whether there’s a second wave of the virus. If there is, how bad might it be? Since we don’t yet know, I don’t think it’s worth contemplating this scenario for long. Simply expect another massive hit to their respective share prices if it comes to pass. If the possibility of that scares you, steer clear!

Let’s assume, instead, that a big second wave is avoided but protective measures are still enforced.

Should this come about, I suspect IAG may struggle. The compulsory wearing of masks makes more sense than separating passengers by seats but will likely make for a fairly unpleasant experience. The number of customers on a ship may be far greater than a single flight, but Carnival would surely be able to adopt social distancing measures with greater ease.

TUI is perhaps the most problematic of this FTSE 100 bunch since it owns cruise lines, airlines, and a hotel portfolio. The firm also faces growing competition for bookings from nimbler rivals, such as On the Beach.

On the flip side, this diversification could become a buffer for TUI in the better-than-expected scenario since it’s not wholly dependent on one earnings steam. 

And the winner is…

Forget logistical barriers, it’s the psychological wounds inflicted by the coronavirus that could have the greatest lasting impact. As such, I still think it takes courage to buy any of these FTSE 100 stocks right now. This is despite recent rallies suggesting the worst might be over.

Notwithstanding this, I think the cruise line operator just about edges this three-way battle. While undoubtedly biased (I hold), it dominates its industry in a way IAG and TUI can only dream of doing. A 45% market share is about as good as you’ll ever get in the cut-throat travel industry.

Factor in higher operating margins, increasingly active retirees in the West along with growth opportunities in the East and I’d argue the business is the best FTSE 100 ‘bargain’ buy here.

The post FTSE 100 bargain buy: Carnival, IAG or TUI shares? appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Carnival. The Motley Fool UK has recommended Carnival and On The Beach. 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.

If nothing else, recent stock market turmoil proves that markets are not rational.

The valuation of a company is meant to be a reflection of future dividends, discounted by a certain interest rate to give a net current value. If stock markets were rational, there would only be two possible explanations for a sharp rise or fall in valuations: either something important has occurred that will significantly change future dividends, or there has been a revision of expected long-run interest rates.

In my view, while the economic impact of the new coronavirus will be much greater than is commonly supposed, there should be no material impact on dividends paid out in future years. I would argue that the only rational justification for a sharp fall in share prices caused by the coronavirus is fear that the virus may cause the company to go bust.

Drill down

Ryanair’s total assets are worth 1.6 times liabilities, and for easyJet the ratio is marginally lower. For TUI, it is around 1.33.

In all three cases, current assets are worth less than current liabilities, which may make you feel concerned, but that is typical of the sector they operate in.

I suspect that there will indeed be corporate casualties caused by the coronavirus in the airline and holiday business. I think it is unlikely that eastJet or Ryanair will be among them. I expect future revenues and profits at the two companies will recover.

Looking at TUI, it is tempting to draw some kind of inference from the collapse of Thomas Cook, but while both companies faced similar headwinds, Thomas Cook had an extra challenge — large debts incurred to fund its purchase of My Travel.

If you felt the three companies were fairly valued before news of the virus hit, then, right now, they would all appear to be bargains.

The stronger case

There is another aspect not yet appreciated by the markets. If the coronavirus continues to spread and leads to some corporate collapses in the airline and holiday business, then those companies that survive should benefit, as they will be able to expand by filling the void created by bankrupt businesses. The rational thing, then, would be for the markets to push upwards on shares in airlines and travel companies unlikely to go bust.

Irrationality

Is now a good time to buy shares in easyJet, Ryanair, and TUI? If the markets suddenly went all rational, yes it would be. The economist John Maynard Keynes once said: “Markets can remain irrational longer than you can remain solvent.” I suspect that the markets will irrationally sell for longer yet, and I think that shares in these companies have further to fall before they eventually recover.

The post Is now a good time to buy shares in easyJet, Ryanair, and TUI? appeared first on The Twelfth Magpie.

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Michael Baxter 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.

Bad news, good news

The FTSE 100 group’s share price jumped almost 10% yesterday as investors assumed the collapse of Thomas Cook would ease the industry’s overcapacity issue at a stroke.

TUI is up another 5% today after publishing a positive pre-close trading update, which saw chief executive Friedrich Joussen pledging to support its customers who are booked on Thomas Cook Airlines flights, while saying the group is assessing the short-term impact of the group’s insolvency on its own results.

Joussen buoyed markets by insisting that TUI’s “vertically integrated business model proves to be resilient, even in this challenging market environment,” while its Holiday Experiences business continues to deliver strong results.

Wider warning

Lest we forget, TUI itself issued a profit warning in March, saying earnings could drop by around 26%, due to the grounding of Boeing’s 737 MAX aeroplanes, of which it has 15, with more on order. Joussen also referred to “airline overcapacities and continued Brexit uncertainty,” but said the summer 2019 season is closing out in line with expectations. The earnings drop signalled in March still stands though.

TUI will combat these challenges by becoming more cost competitive and extending market share where possible, while developing the brand as “an integrated digital tourism platform business.”

There’s good news with signs customers are returning to Turkey and North Africa, while currency hedging has helped the group plan capacity and pricing.

Turbulent times

Nobody doubts TUI is in a tough industry. Its stock is down by a third in the last 12 months alone, while traditional airlines, such as British Airways and budget carriers easyJet and Ryanair, are also facing plenty of turbulence.

The good news is you cannot simply read over problems from Thomas Cook and assume they apply here too. First, Thomas Cook sank under a £1.7bn debt mountain, much of which stemmed from its failed merger with MyTravel. Also, management now seems to have spent more time lining its own pockets than turning round an embattled business.

TUI’s net debt stood at €1.96bn on 31 March, up from €576m the year before. However, it’s a much bigger company with a market-cap of £5.4bn against £2.2bn at Thomas Cook’s peak. The recent jump reflects planned ongoing financing of its aircraft order book, with more aircraft being brought into ownership and under finance leases. Debt is now returning to the normal seasonal pattern, as the group completes the reinvestment of disposal proceeds received in recent years.

Despite this week’s share price surge, TUI’s stock still trades at just 11.2 times forward earnings. Revenues are expected to fall 29% this year, but rise 45% next. That’s a bumpy trajectory, and I forecast clouds as the global economy slows. On the other hand, we might just get a Brexit resolution one day, and that will surely help.

TUI’s operating margins are thin at 3.4% while the yield is fat at 5.3%, with cover of 1.5. It’s a cyclical stock, so what happens next partly depends on broader economic growth. Well worth a look though.

The post The collapse of Thomas Cook is driving the TUI share price higher. Here’s what I’d do now appeared first on The Twelfth Magpie.

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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.

Bullish investors appear to be betting that the firm’s problems — which have seen the shares halve over the last two years — are now over. If this view is correct, then these shares, which yield 10%, could be a real bargain.

I’ve been taking a fresh look at Galliford to find out more.

What’s new?

Today’s trading update from Galliford covered the year ended 30 June. Chief executive Graham Prothero is confident that pre-tax profits will be in line with expectations. Based on forecasts for earnings of 130.4p per share, this prices the stock at just five times earnings.

There was no comment on the dividend, which suggests to me that the broker forecast figure of 65.6p per share is probably realistic. That gives a 10% yield at the last-seen share price of 656p.

Trading is said to be stable across the group. In housebuilding, the average sale price was down by 4.3% to £351,000 as management targets mid-range houses away from central London. But the year-end order backlog was up by 10% to 2,564 units, which suggests to me that demand is healthy.

Would I buy?

The main problem area for Galliford has been its construction division. This has been restructured, but in my view the main area of concern remains — construction work generally carries high costs, low profit margins and the risk of unexpected complications.

For example, shareholders are waiting to learn about the cost of a “significant claim” on the now-completed Aberdeen ring road project. Cost estimates have risen for Galliford’s Queensferry Crossing joint venture.

As a result of these problems and others, Galliford expects to report £40m of exceptional costs for 2018/19. I estimate that including these costs in the firm’s profit calculations could reduce earnings by as much as 25%.

Although the firm’s housebuilding business appears to be performing well, so too are others. I’d rather buy a housebuilder that doesn’t have a construction business attached to it.

I don’t think this is an undervalued gem. I’d suggest that Galliford’s 10% dividend yield represents the risk attached to these shares. I’d rate GFRD as a hold, at best.

Happy holidays

One company that will be hoping for a trouble-free summer is FTSE 100 travel group TUI (LSE: TUI), which owns a number of European package tour and cruise ship businesses.

The company has been hit by the grounding of Boeing 737 MAX aircraft and by weaker pricing and rising costs on holiday bookings. Profit margins are down and the company expects adjusted profits to fall by as much as 26% this year, depending on when the 737 MAX returns to the skies.

The shares have fallen by more than 50% over the last 12 months, leaving TUI stock offering a tempting forecast yield of 6.6% for the current year. However, I think it’s too soon to get involved here.

TUI isn’t the only company in this sector reporting tough trading. Although broker forecasts suggest that profits will bounce back next year, I think it’s a big risk to price in such a strong recovery so quickly. I plan to watch from the sidelines for now. I’ll only get interested if trading improves, or if the shares get cheaper.

The post Can this 10% yielding FTSE 250 stock make you a million? appeared first on The Twelfth Magpie.

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Roland Head 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.

However, this doesn’t mean that now is the right time to avoid buying FTSE 100 dividend stocks. In fact, valuations may become increasingly attractive if global economic risks remain high. As such, now could be the right time to buy these two large-caps that each offer income returns in excess of 5%.

British Land

Real estate investment trust (REIT) British Land (LSE: BLND) is undergoing a period of change at the present time. The company is seeking to shift the focus of its portfolio towards office, leisure and residential uses as demand for retail space continues to be uncertain. This trend is likely to continue as online shopping grows in popularity, and physical stores become a less obvious means for retailers to sell their products to the public.

While this transition may involve a degree of pain in the short run, British Land appears to have a sound strategy that could add value to its asset base over the long run. Moreover, its valuation suggests that investors have fully factored in the risks that it faces. The company currently has a price-to-book (P/B) ratio of just 0.6. This indicates that the stock is grossly undervalued, and could deliver capital growth in the long run.

With a dividend yield of 5.8%, British Land also has income investing potential. Although there may be other FTSE 100 shares that have faster dividend growth in the near term, the company’s mix of value and income investing potential could make it a highly appealing stock for the long term.

TUI

The travel and leisure industry has not been a popular sector among investors in 2019, with shares in TUI (LSE: TUI) declining by 29%. The company reported a challenging operating environment in its recent update, while the difficulties in the wider industry have been highlighted by the share price collapse of Thomas Cook in recent months.

Looking ahead, trading conditions may remain uncertain for TUI and its sector peers. Consumer confidence in the UK and across parts of Europe remains downbeat, while changing consumer tastes may also lead to added volatility in the company’s performance.

However, with TUI continuing to invest in the customer experience and in its digital offering, it could post improving financial performance as the cyclicality of the economy moves in its favour over the long run. Since it has a price-to-earnings (P/E) ratio of 6.5, it seems to offer a wide margin of safety.

Although there are more consistent performers in the FTSE 100, the company’s dividend yield of 9% suggests that it could offer impressive income returns for less risk-averse long-term investors.

The post 2 FTSE 100 dividend stocks with yields over 5% I’d buy in July appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Which UK stocks are the best for passive income right now?
• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally
• With a 5.8% yield, how much is needed in a Stocks and Shares ISA for £1,000 of monthly passive income?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co. 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.