Investing like Warren Buffett! Should I buy these FTSE 100 dividend stocks?

Following the advice of investment giants like Warren Buffett is good advice in my opinion. So should I buy these cheap FTSE 100 dividend shares today?

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.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

The FTSE 100 has got 2022 off to a flyer and more gains could be in store as investor confidence soars. But I’m worried about some of the frantic buying of high-risk shares that could end up costing investors a fortune. I’m reminded of Warren Buffett’s famous line that investors should “be fearful when others are greedy, and greedy when others are fearful”.

Okay, many FTSE 100 stocks are trading at rock-bottom valuations right now. Plenty of blue-chip firms continue to offer gigantic dividend yields at current prices too. But it’s important for me to remember that a lot of these so-called bargains also offer up considerable risks.

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Such Footsie stocks trade on P/E ratios below the bargain benchmark of 10 times. Their dividend yields for 2022 sit well above the FTSE 100 average of 3.4% too. Should I hungrily snap them up or avoid them like the plague?

#1:  Polymetal International

Gold digger Polymetal International offers one of the biggest yields on the FTSE 100 for 2022, at 9.4%. At the same time the company trades on a forward P/E ratio of just 7.2 times. It’s a reading I think bakes in the threat that gold prices (and therefore revenues) could recede sharply if central banks keep hiking rates.

I actually believe bullion prices could soar again for a number of reasons. Inflation could continue rising even if rates rise, keeping demand for safe-haven gold nice and healthy. Supply chain issues aren’t going away any time soon and energy prices are tipped to climb again too. The ongoing public health emergency and the fragile Chinese real estate market could keep investor interest in gold going as well.

macro shot of computer monitor with FTSE 100 stock market data in trading application

#2: British American Tobacco

British American Tobacco also provides exceptional value on paper. A forward P/E ratio of 7.7 times comes alongside a bumper 8.5% dividend yield. Still, even at these prices I don’t fancy grabbing a slice of the tobacco titan. Its traditional cigarette business is declining as legislation surrounding the use, sale and marketing of such products tightens and people try to lead healthier lifestyles.

It’s possible that British American Tobacco’s huge investment in e-cigarettes may pay off over the long term. Its Vuse vapour product is the world’s leading brand in this area and is rapidly winning market share. However, I’m worried over the long-term future of this business as lawmakers steadily impose restrictions on these new technologies too.

#3: BHP Billiton

I’d much rather buy BHP Billiton shares along with Polymetal International today. This FTSE 100 share could suffer considerably in the near term if China’s property market tanks. But I’d buy the business on bright forecasts for commodities demand for the rest of the decade.

Massive investment in green technology like electric cars and renewable energy is tipped to kick off a new commodities ‘supercycle’ over the next decade. Huge global spending on infrastructure could turbocharge demand for BHP’s products. This could send profits at the mining share through the roof. Today it trades on a forward P/E ratio of 8.6 times. It boasts a monster 8.8% dividend yield as well.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco. 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.

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