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Despite this year's growth, there are still some undervalued, high-yielding dividend stocks in the Footsie. At times, it feels like the sell-off event following the 2020 stock market crash has been extended indefinitely.
But who's complaining? These lower prices mean higher dividends for smart investors.
Here are two FTSE 100 Index companies that continue to deliver excellent dividends, even as the index approaches a new high.
HSBC Bank
The UK's largest bank, HSBC Bank (LSE:HSBA), currently has a dividend yield of 7%. The share price has recovered steadily since the market crash of 2020, and is now up 11.7% over the past five years. It is expected to continue to grow in the coming years, and analysts agree that the stock will rise by 22%.
The bank's forward price-earnings (P/E) ratio of 6.9 is lower than its peers. Lloyds and NatWestFurthermore, the stock is 58% undervalued using a discounted cash flow model.
But it is not without risks. The main challenge facing HSBC is related to China’s economic slowdown and rising trade tensions between China and the US, particularly in the electric vehicle sector. These issues are reflected in the forecasts. HSBC’s earnings per share (EPS) are expected to continue to rise this year, but to decline in 2025, followed by a slight increase in 2026. This could disrupt dividend payments if cash flow becomes an issue.
However, after divesting its Canadian operations, the bank should have cash on hand to distribute. Even if the local economy worsens, it is in a strong financial position to weather the storm.
I have already enjoyed fantastic returns from my HSBC shares and plan to hold them for the long term.
Rio Tinto
Rio Tinto (LSE:RIO) is one of the world's largest mining companies, producing essential minerals such as copper, lithium and iron ore. These metals are used in most of today's modern industries, from housing and construction to technology and renewable energy.
With an ever-expanding population, demand for these minerals is unlikely to decline any time soon. They are used to make batteries for electric cars, laptops and mobile phones. Naturally, this increases the potential for higher revenues and profits for miners like Rio Tinto.
On the downside, economic instability can reduce demand for raw materials and negatively impact profitability. Recently, there have been trade challenges in China that have negatively impacted the company. However, these cyclical risks are inherent to the raw materials market, and geopolitical tensions often threaten supply and demand.
Balancing a portfolio with defensive stocks can help reduce volatility during these periods.
Still, with a forward price-to-earnings ratio of 8.6, the stock appears to offer decent value to me. It is trading 33% below fair value. Based on future cash flow estimates, analysts agree that they could increase by 24% in the next 12 months.
In terms of profitability, any dividend yield above 6% is particularly attractive, especially when compared to the FTSE 100 average of around 3.5%.
I haven't added Rio Tinto to my portfolio yet, but I plan to buy shares in the company once it has freed up some capital this month.
