Overall, the has seen a sizeable decline this year; however, this also provides the opportunity to purchase businesses at a greater value than previously. Here are three value shares with high dividend yields that I’d buy now.
Royal Dutch Shell (LON:) (LSE: RDSB) has had a tough time this year with the sharp drop in demand for oil, as most continue to work remotely and international travel is still limited. The wholesale price of oil, measured as , reduced from $65 per barrel in January to just above $40 dollars where it has stabilised at in recent months. As such, Shell’s margins and ability to generate cash have been affected.
In response, the FTSE 100 giant suspended its share buyback programme and cut its quarterly dividend for the first time since World War II, from 47 cents to 16 cents per share. Inevitably the share price has dropped, reducing from around 2,200p a share in January to 952p today, but now yields a bargain price-to-earnings (P/E) ratio of 6 with an impressive dividend yield of 5%.
Shell has embarked on a number of initiatives to adapt to lower oil prices long term, some of these being the selling of underperforming assets, the reduction of operational cost and diversification into renewable energy production, all aiming towards Shell’s goal of becoming carbon-neutral by 2050.
At the current share price, I think Royal Dutch Shell presents excellent value for a business heading in the right direction.
Legal and General (LSE: LGEN) was one of a handful of FTSE 100 businesses that kept its dividend despite pressure on businesses to reduce them by the Bank of England earlier this year. This was justified by a strong balance sheet with a dividend covered twice by earnings. At the current price of 199p, the P/E ratio is just over 6 and the dividend yield is an unrivalled 8.7%.
Moving forward the company has proven robust. Its 2020 first half results revealed a marginal loss in operating profit of -2%; however, three out of its five operations delivered growth. This demonstrates its financial robustness at a time when other businesses have experienced steep losses.
Overall Legal and General has proved to be a resilient and well managed business that, at the current share price, presents great value.
GlaxoSmithKline (LSE: GSK) is another FTSE 100 company that has proved to have a resilient business model this year, even despite significant outlay as it contributes towards a vaccine for Covid-19. The shares currently trade at 1,430p each, with a P/E ratio of 11.7 and a dividend of 5.5%. The dividend is also secure, covered by one and a half times earnings and its recent second quarter results showed that profit more than doubled from the same time last year.
Currently, GSK is coming to the end of a major restructure which I think will provide for a more solid business in terms of sales and revenue growth long term.
Overall, Royal Dutch Shell, Legal and General and GlaxoSmithKline have shown their ability to weather the current economic downturn as well as showing promising growth long term. Diversified by operating in separate markets, coupled with their current price and dividend yield, I think their value is too great to miss.
Jordan Simmons owns shares in Royal Dutch Shell and Legal and General. The Motley Fool UK has recommended GlaxoSmithKline. 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.
Motley Fool UK 2020