5 dirt-cheap UK shares I’d buy in April

Roland Head looks at some cheap UK shares with high dividend yields he’s looking for his portfolio ahead of the ISA deadline on 5 April.

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Key Points

  • 4 UK shares with dividend yields over 5%
  • A FTSE 100 share that should benefit from rising interest rates

It’s April and the ISA deadline is almost upon us. I’ve been looking for cheap UK shares to buy for my Stocks and Shares ISA this month.

Although we’ve seen a mini rebound, I reckon the recent market shake-out has left behind some potential bargain buys. Here are five UK stocks I’m looking at for my personal share portfolio.

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Buy on bad news

FTSE 100 bank Barclays (LSE: BARC) recently took a fall after it revealed an embarrassing £450m mistake. It’s unfortunate for new CEO Venkat, but the expected cost should be easily affordable.

For this reason, I don’t see this mishap as a reason to avoid Barclays. With the bank’s share price down by 20% so far this year, it’s is now trading at a discount of nearly 50% to its book value of 294p per share. The stock also boasts a forecast dividend yield of around 4.9%, which should be covered three times by earnings.

One niggling concern for me is that Barclays could have other skeletons still hidden in its cupboards. These might be more troublesome.

However, the bank’s performance has improved in recent years. I’d hope that the risk management background of the group’s new CEO might help eliminate future blunders.

For me, the bottom line is that Barclays financial position looks strong and its shares looks cheap, trading on just six times earnings. I’d buy this stock for my portfolio today.

Solid foundations

Housebuilder Redrow (LSE: RDW) has been hit by this year’s selloff. Redrow’s share price has dropped 25% since the start of the year and the company’s shares are now trading slightly below their book value of 555p.

Although housebuilders could suffer if interest rates rise or the UK sees a recession, there’s no sign of this so far.

In its latest results, Redrow said its order book rose by £200m to £1.5bn during the six months to 2 January. Pre-tax profit for the period rose by 17% to £203m, compared to the same period a year earlier.

One reason I like Redrow more than some of the big housebuilders is the company’s culture of owner management. Founder Steve Morgan still owns 16% of the shares, even though he stepped down from running the business a few years ago.

In my experience, companies that have had owner management often take more care to protect shareholders from big losses and pay reliable dividends.

Redrow’s forecast dividend yield of 5.9% should be covered three times by earnings. I reckon that should be affordable, even if profits dip. With the stock trading on just six times forecast earnings, Redrow is a cheap UK share I’d buy.

A bargain 7% yield?

Shares in post and parcel operator Royal Mail (LSE: RMG) have fallen by more than 30% so far this year. This looks harsh to me. Although Royal Mail is facing pressures from rising fuel and wage costs, the group’s performance over the last year has been very strong, in my view.

One reason for caution might be the end of free Covid-19 testing. Based on comments from the company, I estimate that test kits may have accounted for more than 5% of parcel volumes over the nine months to the end of December. That revenue could soon disappear.

Even so, chairman Keith Williams say that parcel volumes are now around a third higher than before the pandemic.

Looking ahead, City analysts only expect to see profits dip by around 5% over the coming year, before returning to growth. Consensus forecasts suggest a dividend of 23.7p per share this year, giving a yield of nearly 7%.

That seems cheap to me. I’d buy Royal Mail shares now for long-term growth.

Insiders are buying this UK share

One buying signal I like to look for is director buying. These insiders should have a good understanding of the business and of trading conditions.

So far this year, directors at latex glove specialist Synthomer (LSE: SYNT) have spent nearly £700,000 buying the company’s shares. I think this is a good sign they expect a return to normal after the disruption of the pandemic.

Synthomer is in a slightly odd situation, as demand for its core product surged during the pandemic. Demand is now easing, but the company has recently expanded its business through a big acquisition. This is expected to add to earnings over time. Synthomer has also just appointed a new chief executive.

There are a few moving parts here which make it hard to predict the exact outcome this year. However, City brokers expect Synthomer’s 2022 earnings to settle around 40% above the level reported in 2020. If that’s correct, then the shares could be trading on just seven times forecast earnings, with a dividend yield of 5.6%.

I’ve been following this UK share as its share price has fallen. At current levels, I think Synthomer could be a good, cheap share to add to my portfolio.

A stock I already own

When I’m searching for stocks to buy, sometimes I end up looking at shares I already own. One example of this is FTSE 250 financial trading firm IG Group (LSE: IGG).

The worst trading conditions for IG Group are when financial markets go really quiet. When that happens, the group’s big customers trade less, cutting the group’s income.

Fortunately for IG, we haven’t really seen quiet market conditions since before the pandemic. Given recent events, I don’t expect to see them in 2022 either.

For IG, this has meant two years of high trading volumes and record profits. At the same time, chief executive June Felix has been investing in growth and targeting new opportunities.

I’m optimistic about this business, which reported an operating margin of more than 50% last year. Although I expect to see a slowdown at some point, I think this risk is probably already reflected in IG’s share price. The stock looks cheap to me on nine times forecast earnings.

I’m happy to continue holding IG and collecting the 5.4% dividend yield. If I didn’t already own this UK share, I’d certainly be buying today.

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Roland Head owns IG Group Holdings. The Motley Fool UK has recommended Barclays, Redrow, and Synthomer. 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.

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.

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