2 cheap FTSE 100 stocks with BIG dividends to buy!

I’m hunting for the best cheap UK shares to buy for my investment portfolio. Here are two FTSE 100 stocks I think could be too cheap to miss.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

There are plenty of investment opportunities in the FTSE 100 for bargain lovers like me today. Here are what I believe to be two of the best cheap stocks to buy on the index right now.

Defence darling

The huge amounts Western nations spend on defence makes BAE Systems (LSE: BA) a rock-solid FTSE 100 share in my book. Thanks to its broad range of cutting-edge hardware that can be found on land, at sea and in the air, it’s a critical supplier to US and UK armed forces.

Total military spending has been soaring of late. According to the Stockholm International Peace Research Institute, global arms spending hit its highest for more than 30 years in 2020. It looks likely that spending by the West will keep growing strongly amid a perceived elevated threat from superpowers like China and Russia and the ongoing fight against terrorism.

Analysts at Statista think US defence spending will rise every year this decade before hitting $915m in 2031. That compares with the $733m expected outlay it forecast for 2021. If this proves correct, major defence operators like BAE Systems will see demand for their technology soar in the coming years.

Today BAE Systems trades on an undemanding forward price-to-earnings (P/E) ratio of 12 times. This provides share investors with decent bang for their buck, in my opinion. On top of this the company carries an inflation-beating 4.5% dividend yield. I think the blue-chip is a top buy for me, despite the threat posed by the rise of responsible investing, a theme that is seeing defence stocks fall out of favour with investors. The JP Morgan American Investment Trust, for example, recently dumped its holdings in aerospace giant Raytheon Technologies for ESG reasons.

One of the best FTSE 100 stocks of the 2010s

I also think Persimmon looks too cheap for me to miss at current prices. This FTSE 100 share trades on a forward P/E multiple of just 10.5 times. But what’s really grabbed my attention is the housebuilder’s enormous 8.3% dividend yield.

Persimmon was the Footsie’s eighth best-performing stock of the 2010s. During that time its return on investment rose at a compound annual growth rate of 25.5%. The same conditions that helped propel Persimmon’s returns in the last 10 years remain very much in play today, I feel.

First-time buyers continue to receive considerable support from the government’s Help to Buy incentive scheme. Bank of England base rates are extremely low versus historical norms and are likely to remain so (Lloyds Bank, for example thinks the rate will remain below 1% between now and 2025). And homeowner affordability will remain boosted by the high level of competition in the mortgage market. In fact the rapid rise of challenger banks means that the landscape is more competitive today than it was previously.

I own shares in Barratt Developments and Taylor Wimpey to make money from this favourable trading environment. And I’m thinking of buying Persimmon too on account of that gigantic 8.3% yield. I’d buy the builder despite the threat that building materials shortages pose to profits. It’s a problem that could significantly drive up costs and potentially hit production rates.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Royston Wild owns shares of Barratt Developments and Taylor Wimpey. 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.

More on Investing Articles

Bearded man writing on notepad in front of computer
Investing Articles

Is there still time to buy Scottish Mortgage shares?

The Scottish Mortgage share price has risen strongly in recent weeks. Should I pile into the FTSE 100 momentum stock…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Why I’d start buying shares with £250 today not £20,000 in future!

Is it worth waiting to start buying shares until one has more money to invest? Our writer doesn't think so…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

I’ve bought Diageo shares to boost my long-term passive income!

I plan to hold on to my Diageo shares well into retirement. Here's why I think it's a top stock…

Read more »

New virtual money concept, Gold Bitcoins
Investing Articles

Down 61%, are Argo Blockchain shares worth buying?

Argo Blockchain shares have tumbled in value. As a shareholder, Christopher Ruane considers what might come next for the business…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 UK dividend stocks with yields over 10%

These dividend stocks are the highest yielders on the UK market, says Roland Head. But how safe are these generous…

Read more »

Couple relaxing on a beach in front of a sunset
Investing Articles

I’d start buying shares for passive income with this pair

Our writer is looking to earn passive income via investing, and here are two leading stocks he might buy.

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Here’s the Shell dividend forecast through to 2024

The Shell dividend is still nearly 50% below 2019 levels. Will the oil giant use record profits to rebuild its…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 FTSE 100 stocks I think Warren Buffett might love!

Warren Buffett made his fortune thanks to the success of US shares. But here are three FTSE 100 stocks I…

Read more »