3 top FTSE 100 dividend stocks going cheap

Updated: 
Marks & Spencer

Everybody loves a bargain, especially when it pays a juicy income as well. The following three FTSE 100 stocks are trading at lowly valuations yet all yield more than 5%. Good reasons to pop them into your portfolio.

Take it Easy

Budget airline Easyjet(LSE: EZJ) has suffered plenty of turbulence lately, with its share price dipping 36% in the last 12 months. You can blame it on Brexit, to a large degree, with the share price plunging in the immediate aftermath as investors feared the impact on travel bookings, and continuing to trail down ever since. Now it even faces relegation from the FTSE 100.

Terrorist attacks on tourists and tough competition from budget rivals such as Ryanair and Wizz Air meted out further damage, but I now reckon it has all been overdone. EasyJet is trading at an economy class 8.6 times earnings, while yielding a first class dividend income of 5.78%. I am not the only one who is tempted. Cantor Fitzgerald has just lifted its rating from hold to buy with a target price of 1,200p, which suggests a near 25% upside from today's 963p. EasyJet's fundamentals looks sound. Take-off may not be far away.

On your Marks

High street giant Marks & Spencer Group(LSE: MKS) has also had a dismal year, its share price down 21% in that time. It still trades lower than it does five years ago. This is a tale of two very different divisions: its food halls are enjoying the best of times, its clothing sales are suffering the worst of times. The first has caught the foodie zeitgeist, the second is a fashionista fail.

Chief executive Steve Rowe is wisely backing its winning food formula and stepping away from its losing clothing division. He plans to roll out more than 200 new Simply Food stores, while cutting back on around 60 Clothing & Home outlets, although some will get a revamp. All this will cost money, around £500m, so wave goodbye to any special dividends. Consumers may be feeling the squeeze but trading at 9.5 times earnings and yielding 5.7%, such headwinds now look priced-in.

Right Royal income

It is a long time since anybody became excited about Royal Mail(LSE: RMG). The stock now trades at 409p, well below its peak of 604p on 16 January 2014 amid the post-launch hype. That is more than three years ago now. Here's the thing: you aren't investing in the midst of a media-driven bubble, which means you now have a far more accurate assessment of what the business is worth.

It is a plodder. Management has to balance the delicate task of running a declining letters business against the challenge of making headway in the growing but competitive parcels market, both in the UK and Europe. This stock will never shoot the lights out. However, this is recognised in this valuation, currently 9.9 times earnings after a difficult six months, which saw the shares drop nearly 20%. That makes now a good entry point. And here's the deal clincher: you are getting a dividend yield of 5.41%, almost 22 times base rate, in a relatively low-risk business. I do love a bargain, me.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.