I really enjoy ‘deep mining’ in the FTSE 100 index, tracking down cheap UK shares. To me, the Footsie is both unloved and undervalued — in historical terms and by geographical comparison. While I consider US stocks to be in bubble territory, I see the Footsie as packed with attractively priced shares. As a result, my wife and I use our spare cash to buy low-priced UK stocks. Also, as I expect some form of stock-market correction in 2022, buying bargain shares is my attempt to minimise our future potential losses. Here are two shares that I don’t own, but would buy today for their delicious dividends and potential capital gains.
FTSE 100 dividend dynamo #1: Legal & General
My first stock is what some might consider a ‘boring’ FTSE 100 share: Legal & General (LSE: LGEN). At first glance, L&G looks like a fairly dull company. However, when I look at its shares, I’m excited about the prospect of future profits.
While working in the financial world from 1987 to 2002, I got to know L&G pretty well. And I’d argue today that it’s a first-class business standing head and shoulders above many of its peers. Also, having been in business since 1836, L&G has built an outstanding brand over its 185-year life. Today, the FTSE 100 firm is one of the UK’s leading provider of life assurance, savings and investments. With stock markets booming since the lows of March 2020, L&G now manages well over a trillion pounds of wealth for more than 10m customers.
Nevertheless, this stock has underperformed the wider market over the past year. At Tuesday’s closing price of 277.9p, L&G shares have risen by only 6.6% over 12 months. Meanwhile, the Footsie has leapt by 15.2% over one year. At this current share price, L&G is valued at £16.6bn. Its stock trades on a price-to-earnings ratio of 7.3 and an earnings yield of 13.6%. But L&G’s main attraction for me is its bumper (but not guaranteed) cash dividend yield of 6.4% a year, versus the FTSE 100’s 3.8% a year. Although I think L&G is a great British business, it must compete for clients with some powerful rivals, including several US super-heavyweights. Despite this competition for business, I’d still buy LGEN at today’s levels.
Footsie mega-dividend #2: Evraz
My second FTSE 100 dividend is way higher than L&G’s market-beating 6.4%. In fact, it’s one of the highest dividend yields I’ve ever seen in the Footsie. This massive (but again, not guaranteed) dividend comes from Evraz (LSE: EVR). This global steelmaker and miner has major operations in Russia, Ukraine and North America. The company’s outputs include steel, iron ore, coal and vanadium. Evraz is one of the world’s top steel producers, producing 13.6m tonnes in 2020.
The group’s biggest shareholder is a well-known figure, thanks to his ownership of Premier League club Chelsea FC. He is, of course, Roman Abramovich, whose large shareholding entitles him to a big slice of Evraz’s massive cash dividends. At Tuesday’s closing price of 586.6p, Evraz is valued at £8.6bn. Its shares trade on 7.7 times earnings and offer an earnings yield of 13%. Its dividend yield is an enormous 13% too. I’d buy Evraz for this delightful dividend alone, but I would also brace myself for price instability. Having owned mining shares in the past, I know full well how very volatile they can be at times!
