While the FTSE 100 could realistically rise or fall by a few hundred points in the space of just a few days, the index’s long term outlook is positive. Certainly, it may be around 10% off its all-time high which, for some investors, may indicate that further declines are on the cards over the medium term. However, the index appears to be very cheap at the present time, with it yielding just below 4% and a number of its constituents (as well as smaller companies outside of the FTSE 100) offering bargain basement valuations.
Chief among them is Bellway (LSE: BWY). The house building sector appears to be one of the best places to invest in the coming years since interest rates are due to remain very low. Of course, they are due to begin their rise in the coming months, but anything faster than a snail’s pace of increase seems unlikely due to the uncertainty that is set to be a feature of the coming years. As such, demand for housing should remain buoyant.
Despite this, Bellway trades on a price to earnings (P/E) ratio of just 11 which, for a company that is due to post a rise in its bottom line of 14% next year, seems rather low. And, with Bellway expected to yield 3.4% in 2016, its dividend prospects are bright – especially when its payout ratio of just 33% is taken into account.
Similarly, Findel (LSE: FDL) is a company on the up. It is gradually returning to full health following a very challenging period, with a restructuring set to help it grow net profit by 18% this year and by a further 15% next year. Despite this positive outlook, shares in Findel are flat in the last year and, as such, it now trades on a price to earnings growth (PEG) ratio of only 0.5, which indicates considerable upside.
A potential catalyst for Findel’s shares could be the commencement of dividend payments. Although it is not forecast to commence them next year, shareholder payouts could highlight to the market that Findel is becoming financially stronger and also provide evidence that the company’s management team is confident regarding its longer term financial performance.
Dividends are also important for investors in BP (LSE: BP), with its management team stating in a recent update that shareholder payouts are a priority. And, while a dividend cut is on the cards as a result of pressure on sales and margins following an oil price slump, BP is still expected to deliver a yield of 6.6% in 2016.
Further evidence of BP’s bargain basement valuation can be seen in its price to book value (P/B) ratio. It currently stands at just 0.87 which, for a company with the asset base of BP in terms of its appeal, size and diversity, seems to be very low. And, while a further fall in the oil price could make BP even cheaper, for long term value investors now seems to be a sensible moment to take the plunge, add BP to a portfolio and watch the dividends and capital gains roll in.
