Today I'm looking at two big-cap stocks from the financial sector, both of which boast forecast dividend yields of about 6% at the moment.
First up is FTSE 100 stalwart Legal & General Group (LSE: LGEN). This stock is a popular choice with income investors and pension funds. So for many shareholders, today's news from the firm may be bittersweet.
The good news is the company will book an exceptional profit of £300m-£400m this year. The bad news is that this is possible because the firm's life insurance customers aren't living as long as expected. So Legal & General is able to release some cash previously reserved for claims.
Moving on, the rest of the firm's results are good, if not outstanding. Operating profit rose by 5% to £909m, but after-tax profit fell by 19% to £772m. That company says that this was due to a reduction in the value of some of its investment assets, due to volatile market conditions.
Sleep soundly with these shares
The firm's return on equity -- a key measure of profitability for financial stocks -- fell to 20.3% during the first half, compared to 26.7% during the same period last year. But this is still a very impressive figure. Most of the big FTSE 100 banks have a return on equity of less than 10% at the moment.
This high level of profitability is one of the reasons why I continue to rate Legal & General as an income buy. The shares currently trade on 9.5 times 2018 forecast earnings, with a 6.2% dividend yield. At this level I believe they're a safe long-term buy for any income portfolio.
A contrarian opportunity
Legal & General shares have lagged the FTSE 100 slightly so far this year. But I don't see the insurance giant as a contrarian buy.
If you're looking for a stock that's truly out of favour, one option is FTSE 250 interdealer broker TP ICAP (LSE: TCAP). The share price of this voice broking specialist has fallen by 46% since March, thanks to disappointing results and a July profit warning.
This business was formed when Tullett Prebon merged with the broking division of ICAP in late 2016. But the integration of the two businesses is proving harder than expected. Former chief executive John Phizackerley was given the boot in July. His replacement Nicolas Breteau admitted this week that the integration plan "had so far failed to achieve what had been envisaged".
Time to start buying?
TP ICAP's revenue fell by 2% to £910m during the first half, but underlying operating profit rose by 7.6% to £155m. This gives a healthy underlying margin of 17%.
Although a number of one-off costs ate into these promising figures, the company is now confident of achieving its revised target of £75m in cost savings by the end of 2019. Investment in new technology-based services is also being ramped up.
The balance sheet remains reassuringly strong, with net cash of £608m at the end of June. There's no risk of financial distress that I can see. It may also be worth noting that two directors have spent a total of £104,000 buying the firm's shares this week.
The stock now trades on 8.5 times forecast earnings, with a twice-covered dividend yield of 5.8%. In my view, this could be too cheap to ignore.
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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.