March’s stock market crash leaves plenty of FTSE 100 stocks looking far too cheap. The UK’s blue-chip index has risen from March’s 11-year troughs, sure. But there are plenty of constituents that continue to offer what appears irresistible value, at least on paper.
Don’t get too excited though. Where some investors see dirt-cheap dividend heroes on the Footsie, I only see investment traps waiting to rob you of your cash. What category do the following shares fall into?
The iron giant
BHP Group (LSE: BHP) has been attracting a lot of buying attention from value and income investors of late. Despite its recent price bounce, the Footsie mining giant still seems to offer plenty of value on paper. In addition to a forward price-to-earnings (P/E) ratio of 11.5 times the FTSE 100 firm carries an inflation-mashing 5.5% dividend yield, too.
I’m not tempted to dip buy BHP’s shares however, given the murky price outlook for many of its commodities. Take iron ore, for example, its single most important product. Supply disruptions in Brazil have helped prices of late, but global production threatens to balloon during the 2020s as new mines come on-stream and expansion projects start firing and drag values lower.
Questions over future steel demand — covering everything from the economic impact of Covid-19 to limp Chinese infrastructure spending in recent years — provide a further reason for investors to swerve BHP shares. I for one won’t be investing any time soon.
Boring but brilliant
I’d be much happier to invest my hard-earned cash in National Grid (LSE: NG). Its operations might be boring, but this is what makes it such an excellent pick for dividend chasers. Electricity demand never tends to fluctuate that much, a quality that gives the Footsie-quoted power network operator the confidence to pay above-average dividends each and every year.
It’s a quality that can’t be underestimated at the current time, naturally, given the shocking storm that’s battering the world economy. When lots of other shares are cutting their dividends, National Grid is likely to keep on raising them. What’s more, the firm has plenty of financial wiggle room to continue throwing big shareholder payments out. It currently has £5.5bn of undrawn committed bank facilities to draw upon.
Right now the FTSE 100 share trades on a forward P/E ratio of 15 times and carries a chunky 5.5% dividend yield. I reckon it’s a top income share to own in these uncertain times.
Another FTSE 100 firecracker
I also reckon buying Polymetal International is a wise idea today. First off the gold producer carries a mighty dividend yield close to 5.5%. It also trades on a rock-bottom P/E multiple of 10 times for 2020.
But let’s look past these great near-term numbers for a second. It’s possible that this FTSE 100 stock could be one of the index’s best performers of the next decade. Why? A combination of unparalleled macroeconomic and geopolitical uncertainty, allied with constant money pumping by central banks, suggests that gold prices could explode in the coming years. And by extension, profits at Polymetal could shoot through the roof.
