For anyone who wants to enhance their income streams, I think buying FTSE 100 shares that have substantial dividend yields is a great option. That’s how I plan on building my own second income in the years ahead.
Here are two shares I’m keen to pick up and think investors should consider buying today.
Schroders
The first option is asset and wealth manager Schroders (LSE: SDR). I like the stock for a few reasons. The main one is its 5.4% yield covered just shy of two times by earnings.
Schroders has missed out on the recent Footsie rally. However, with its share price looking cheap by its own standards, it now trades on 15.8 times trailing earnings and 12.7 times forward earnings. I think that’s good value.
Inflows have wobbled recently as ongoing economic uncertainty fuelled by factors such as inflation and global conflicts continue to weigh on investor confidence. This has hurt Schroders over the past few years and is something I’ll continue to keep in mind.
But we’re starting to see positive signs of recovery, with its Q1 total assets under management rising to £760.4bn.
What’s more, I like Schroders for its strong market position. It has been operating for over 200 years, meaning it has faced numerous challenges in its past. That gives it an edge when it comes to navigating the current economic climate.
I’m not expecting fireworks with the share price. However, I feel that in the years to come we could start to see it trend upwards. While I wait for that, I’d happily collect some passive income along the way.
Diageo
I’ve also been tracking Diageo (LSE: DGE) for a while. I’m hoping to have some spare cash this month. If so, I’ll be picking up some of its shares.
At 3.1%, its yield may not stand out as incredibly appealing to investors. However, there’s one factor about Diageo’s dividend that I think makes it one of the most attractive on the Footsie.
The company has increased its payout for 37 years in a row. That’s an incredible track record considering during that time we’ve faced challenges such as the pandemic and the Global Financial Crash.
The business sells premium brands and is a dominant player in the spirits market, which gives it a competitive advantage over its peers.
That said, we’re in a cost-of-living crisis and the impact of this has been seen in Diageo’s sales. They’ve taken a hit in the last 12 to 18 months. This slowdown has been most prevalent in the Latin America and Caribbean region. In the near term, we may continue to see consumers opt for cheaper alternatives.
However, I think Diageo is well-positioned to excel in the long run given its portfolio of premium names and trends such as rising wealth in developing nations.
What’s more, I reckon Diageo shares look like good value for money. I can pick them up trading on 19 times earnings. That’s above the Footsie average (11), but below the stock’s long-term historical average of around 24. With that, I think there’s value in this Dividend Aristocrat.
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and Schroders Plc. 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.
