A friend left me a voicemail message yesterday. He told me that he wanted to invest several hundred pounds a month into cheap stocks, and asked which UK shares I’d buy now to start a new portfolio. Apparently, he was inspired by my article yesterday about two cheap FTSE 100 shares. I can’t give out individual investment advice. That said, here are three Footsie shares that I don’t own, but would happily put £250 into each today.
#1. BHP for dividends
One powerful stock market saying is “Time in the market beats timing the market.” For me, investing is a long game in which I capture as much of Mr Market’s future profits as I can. Often, I do this by collecting (and often reinvesting) dividends. Dividends are cash distributions paid to shareholders, typically half-yearly or quarterly. Though dividends are not guaranteed, I’m drawn to companies offering decent payouts.
For its market-beating dividends, the first of my cheap stocks is miner BHP (LSE: BHP). At the current share price of 1,981.8p, BHP is a £106.3bn super-heavyweight. Yet its shares trade on a modest rating of 12.3 times earnings and an earnings yield of 8.2%. BHP’s huge cash flows allow it to make bumper payouts: its current dividend yield is 10.7% a year. Although mining stocks are notoriously volatile, I’d ride out future turbulence by reinvesting my dividends into yet more BHP shares.
#2. IAG for recovery
The second of my cheap stocks is International Consolidated Airlines Group (LSE: IAG). IAG operates eight airline brands, including British Airways (UK), Iberia (Spain), and Aer Lingus (Ireland). Due to Covid-19, airline stocks have taken a savage beating over the past 20 months. At its 2020 peak on 17 January last year, the IAG share price hit an intra-day high of 684p. During the global pandemic, IAG shares collapsed to a lifetime low of 86.54p on 25 September 2020. But as vaccination programmes rolled out, they hit a 2021 intra-day high of 222.1p on 16 March 2021. Alas, the shares have since plunged back to earth. As I write, they trade at 141.98p, down more than a third (36.1%) over the past six months. When we do get the coronavirus under control, then I expect IAG to recover and rebound. But if Covid-19 lingers, it could be a bumpy ride!
#3. Lloyds for growth
The third of my cheap stocks is seen on most high streets: Lloyds Banking Group (LSE: LLOY). Lloyds has 13 leading financial brands, including Lloyds Bank, Halifax, Bank of Scotland, Birmingham Midshires, and Scottish Widows. But being Britain’s leading lender during a pandemic is hardly ideal. At its 2020 peak, just before the coronavirus changed our world, LLOY hit an intra-day high of 63.84p. By 22 September 2020, it had crashed to a low of 23.58p. As I write, Lloyds trades at 44.83p, valuing the Black Horse bank at £31.8bn. Its shares trade on a lowly rating of 6.8 times earnings and an earnings yield of 14.6%. Lloyds cancelled its dividend in 2020, but has since reinstated it. Hence, the current dividend yield of 2.8% a year has scope for growth. If Covid-19 abates, then I expect Lloyds’ earnings to grow. But any further viral setbacks might hit the shares for six…
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.