Well, 2019 hasn’t exactly got off to the most reassuring start, to put it mildly. It’s taken just a couple of newsbites to cause global stock markets to shake lower again, but what a couple of doozies they’ve proven to be.
As if Apple’sfirst profit warning since around the turn of the millennium, issued in the first hours of new year’s trading on the back of slowing sales in China, wasn’t bad enough enough, this was followed by Institute for Supply Management data showing US factory activity in December fell at the fastest rate for 11 years. In the following days the FTSE 100 fell back towards recent two-and-a-half year lows as more risk-averse investors headed for the exits.
Tonnes of trouble…
There’s a cauldron of political and economic problems that could heap more misery on share markets in 2019 too, from fears over the health of the US and Chinese economies to tension over Russian foreign policy, the outcome of Brexit talks and Federal Reserve rate hikes.
I would argue, though, that now is a great time to go shopping on the Footsie. There are plenty of shares dealing on dirt-cheap valuations, taking into consideration some of those risks I have just mentioned. And as I discussed in a recent piece, with dividends on Britain’s top index poised to hit record highs this year, there’s arguably been no greater time for dividend investors to take the plunge.
… and a prime buying opportunity?
The key to creating an extra income stream from your investment portfolio is to pick shares with chunky, inflation-mashing dividend yields, like the housebuilders, to provide just one example. These firms have bounced since the turn of January, and for good reason — Taylor Wimpey, Persimmon and Barratt Developments sport some of the biggest forward yields on the FTSE 100 with their figures of 12.9%, 11.8% and 9.5% respectively.
Sure, a catastrophic Brexit may throw earnings projections off course should the economy take a subsequent smack, but these three stockss’ forward P/E ratios that range from 6.5 times to 7 times reflect this risk and make them great buys, in my opinion.
Safe and generous
It’s generally considered that another good rule to successful dividend investing is to pick shares whose dividend projections are covered by anticipated earnings by 2 times or more. The housebuilders may fall short in this respect, but their rock-solid balance sheets should soothe any concerns investors may have on their payout prospects. It’s worth considering not just payout cover, but companies’ broader financial health before taking the plunge.
If you’re a stickler for good dividend coverage, easyJet and BAE Systems are definitely worth a look. They trade on dirt-cheap prospective P/E multiples of 9.3 times and 10.5 times, and while their corresponding yields sit at a lower 5.4% and 4.9% respectively, these figures are still pretty formidable. The cherry on top of the cake is that their dividend estimates are covered 2 times in their current fiscal years.
All the firms I have mentioned in this piece are in great shape to pay big dividends now and to grow them in the years ahead too, another critical quality for those looking to build a second income stream from their stocks. And they are not even the only blue-chip beauties that could make you a fortune in the years ahead.
