2 ridiculously cheap FTSE 100 shares with high dividend yields

These FTSE 100 stocks have seen a sharp fall in their share prices over the past few months, but at least they make up for this with high dividend yields.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

November is turning out to be a good month for the FTSE 100 index. It touched levels higher than 7,300 recently, and continues to hover around that number as I write. Rising stock markets increase the chances of my investment portfolio growing in value. But they also increase prices of individual stocks on my wishlist, sometimes to uncomfortably high levels.

It turns out, though, that if I look hard enough, I can still find some pretty sweet FTSE 100 bargains. Specifically, I would look at commodity stocks. Now, these stocks have had a good ride over the past year or so. Industrial metal prices rallied, which pushed up their share prices and also made investors big money in dividends. 

Beaten down commodity stocks

Some of them continue to rally, like the Swiss commodity miner and marketer Glencore. Others have taken quite a hit, even though it may not be immediately obvious. One such is Anglo American (LSE: AAL), whose share price is still up around 35% over the past year. But this hides the fact that in the last six months alone, its share price has fallen around 19%. And then there are those for whom the party seems to be entirely over. I am referring to Rio Tinto (LSE: RIO). All of its share price gains of the past year have now been wiped out.

Unsurprisingly, this makes their relative prices dirt-cheap. Anglo American has a price-to-earnings (P/E) ratio of around 7 times right now, while it is at about 5 times for Rio Tinto. By comparison, the P/E for Glencore is close to 33 times. This has also increased their dividend yields. While Anglo American is at a pretty good 6.4%, Rio Tinto is at a huge 11.2%.

Why are these FTSE 100 stocks’ prices falling?

The big reason for their share price weakness is that the outlook for iron ore has undergone a correction. Both companies are among the top five producers of iron ore in the world. The list also includes the FTSE 100 stock BHP, but I am ignoring that for now because it is due to be delisted from the London Stock Exchange soon.

The commodity is also their biggest source of earnings. For Rio Tinto, it accounts for almost 75% of its earnings. Anglo American is a bit more diversified, but iron ore still makes up 41% of its earnings. The difference in reliance on iron ore possibly also explains why the former’s share price has fallen far more. 

My assessment

I am of the view that their share prices could have over-corrected. Rio Tinto, for instance, has fallen below even its pre-pandemic levels. And at the same time, the outlook for the global economy continues to be robust. I reckon the Chinese government could still continue to support the recovery if the country’s economy does not pick-up sustainably and Joe Biden’s US infrastructure plan could also increase industrial metals’ demand. 

Over time, I think these stocks will offer capital gains, not just high dividend yields. I hold both in my portfolio and will continue to do so.

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 assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of Anglo American, Glencore and Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. 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

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in July [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Warren Buffett’s Berkshire Hathaway dumped this growth stock. Here’s why I won’t

Eyebrows were raised when Warren Buffett's company invested in this Latin American fintech disruptor a few years ago. But now…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

£15k to spend? 3 UK shares, investment trusts and ETFs to consider for a £1,185 second income

By harnessing a range of different dividend stocks, I'm confident this mini portfolio might pay a large long-term second income.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Tesla stock about to crash?

Tesla stock was on the slide today, shedding around $80bn in market value. What's going on with the electric vehicle…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Should British investors consider buying Apple stock while it’s down 14% in 2025?

Apple stock has underperformed in 2025, falling more than 10%. Is this the buying opportunity UK investors have been waiting…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
US Stock

2 AI growth shares that I think are still undervalued

Jon Smith flags up two AI growth shares that aren't as overhyped as some peers, making them appealing for him…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Where is the next Nvidia stock right now?

Nvidia stock has delivered jaw-dropping gains. Here are 10 growth shares that have the potential to also produce big returns…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Could these FTSE 100 stocks explode in July?

Looking for FTSE stocks that could catch fire this month? Here are the share price prospects of two popular London…

Read more »