Muted investor sentiment can lead to lower stock prices and higher dividend yields.
October started with a weak-looking stock market. And that situation has created an opportunity to appraise shares for their dividend income potential.
A troubled sector
For example, I like the look of house building company Taylor Wimpey (LSE: TW).
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With the share price in the ballpark of 113p, the forward-looking dividend yield is around 8% for 2024.
It’s no secret that the housing market has been weaker. And City analysts forecast lower earnings ahead for the business. But the dividend looks set to hold up close to its current level of just over 9p per share for the next couple of years.
My assumption is that house prices will likely stabilise beyond 2024. And Taylor Wimpey’s dividends and earnings may hold up as well. However, the housing market is cyclical and there is some risk that earnings for the business may move even lower before recovering.
In August’s half-year results report, chief executive Jennie Daly offered an upbeat assessment of the firm’s prospects. The business is “strong, sustainable and agile”, Daly said. And it has a robust balance sheet and an “excellent” landbank.
The challenges faced by the business now may prove to be short term. So, it looks like a good time to dig into the enterprise with deeper research.
Investing now for better times ahead
I’m also keen on diversified mining company Rio Tinto (LSE: RIO).
With the stock near 4,996p, the forward-looking dividend yield is around 6.8% for 2024.
Much of the firm’s revenue comes from the production of iron ore. But it also deals in copper, aluminium, and other minerals.
One of the risks for shareholders is that commodity selling prices tend to be volatile. And swings in the price can affect the company’s profits.
The cyclicality shows up in the trading and financial record. For example, earnings have been weaker recently and the level of dividends has dropped.
However, City analysts predict the dividend will likely remain flat for 2024. And there’s a chance dividends could grow again in the future. Much depends on those commodity prices, so it’s essential for investors to do their own research before buying any of the shares.
But any holding period will likely involve a roller-coaster ride with the share price. At least that seems possible based on past performance.
However, despite the risks, I’m bullish about the prospects for world economies ahead. And to me, that means it seems like a good time for investors to consider Rio Tinto for its dividend.
But as mentioned, both these FTSE 100 stocks have cyclicality within their underlying businesses. And that means a buy-and-forget approach to investing in the shares may be inappropriate. At some point during the next few years, I’d aim to sell the stocks before the next downturn in each sector.
Nevertheless, those dividend yields look tempting. And this may be a good time to run a calculator over the stock opportunities.
