Who needs a FTSE 100 Santa Rally? These yields are GIFTS!
At this time of year, investors often get excited about the prospects of a ‘Santa Rally.’ This refers to the phenomenon that stock markets around the world tend to rise in the last few weeks of the year.
Last year, Santa came through with the goods in a big way, with the FTSE 100 jumping approximately 4% in December. And looking further back, Santa has a good long-term track record of delivering, as the FTSE 100 has risen by an average of 2.4% in December since 1987 – the highest gain of any month – according to research from Schroders.
This year, however, appears to be a different story so far. I don’t know if Santa is stuck at the North Pole right now, or trapped in a chimney somewhere, but he certainly doesn’t seem to be working his magic.
Yesterday, for example, was a horrible day for UK equities, with the FTSE 100 falling 3.2% and closing at its lowest level in two years. The index traded as high as 7,145 points on Monday, yet yesterday it fell as low as 6,674 points, which equates to a decline of nearly 7% in less than a week.
The reason the FTSE has plummeted this week is that there’s a lot of uncertainty around at present. For starters, there’s Brexit. No one knows how this will play out. Then there’s continued trade war uncertainty, with the recent arrest of Huawei’s CFO stoking concerns that US/China trade wars may not be over. Given this uncertainty, December this year feels very different to December last year. At this stage, it looks as if we may not get a Santa Rally.
Huge yields are gifts for long-term investors
However, for long-term investors, that’s not necessarily a bad thing, in my view. Because, as I explained in this article, if your investment time horizon is five years or longer, then lower share prices and higher dividend yields are actually an opportunity. And looking at the FTSE 100 right now, I’m seeing some absolute gifts in terms of the yields on offer.
For example, let’s start with the oil sector. With the oil price falling recently, investors have dumped oil stocks such as Shell and BP, and that means there are now some fantastic yields on offer from this sector. Investors buying now can pick up yields of around 6.2% from the oil majors, which I think is a steal in today’s low-interest rate environment.
Then there’s the financial sector. Whether you’re interested in banks, asset managers, or insurers, there are some phenomenal yields on offer right now from FTSE 100 financials. Lloyds, for instance, offers a prospective yield of 5.9%. Legal & General offers an even higher prospective yield of 7%. And Aviva is currently offering a prospective yield of nearly 8%.
Looking outside these sectors, there are plenty of other FTSE 100 stocks offering ‘gift’ yields right now. For example, DS Smith, which makes cardboard boxes for Amazon, currently offers a prospective yield of 5.1% while defence giant BAE Systems is now sporting a prospective yield of 4.9%.
With so many 5%+ yields on offer from FTSE 100 stocks at the moment, it’s a great time to be a dividend investor, in my view. I’m not too concerned if Santa doesn’t work his magic this year, as I see the current yields on offer as fantastic buying opportunities.
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Edward Sheldon owns shares in Royal Dutch Shell, Aviva, Legal & General Group, Lloyds Banking Group, DS Smith and BAE Systems. The Motley Fool UK has recommended DS Smith and Lloyds Banking 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.