This week, I’ve been hunting for cheap FTSE 100 shares for my portfolio. I reckon I’ve found three big-cap dividend stocks that could deliver passive income and growth for me over the next decade.
Is now the right time to be buying shares? The future is always uncertain. But legendary investor Warren Buffett has been splashing out recently, spending $50bn during the first quarter of this year.
My guess is that Buffett expects the global economy to keep moving forward. I do too. By focusing on value stocks, I’m hoping to provide get some protection from inflation and recession risks.
A safe 5%+ dividend yield
My first pick is NatWest Group (LSE: NWG), the UK bank formerly known as Royal Bank of Scotland. NatWest shares have gained 10% over the last year but remain cheap, in my view.
Rising interest rates should help support the bank’s profit margins. Meanwhile, the group’s strong capital position suggests to me that the forecast dividend yield of 5.7% is safe.
A UK recession could cause an increase in bad debts and a slowdown in new lending. That’s a risk. But NatWest has been through a tough turnaround since 2009 and has faced worse problems.
As I write, NatWest shares are trading nearly 20% below their book value, with a forecast price/earnings ratio of nine. With 30% profit growth forecast for 2023, I may buy NatWest for my portfolio.
A bargain healthcare stock?
The second FTSE 100 share I’m looking at is Hikma Pharmaceuticals (LSE: HIK). Unlike larger rivals AstraZeneca and GlaxoSmithKline, many of Hikma’s products are generic drugs. These are cheaper clones of branded products whose patents have expired.
This model means Hikma doesn’t have to take so much risk on new product development. Although the company still has to gain regulatory approval for new medicines, future demand is easier to predict.
One risk with generics is “increased competition”, according to CEO Siggi Olafsson. This could force Hikma to cut its prices, hitting profits.
I think the company should be able to address this risk by expanding its portfolio in areas where it does have differentiated products, such as injectable medicines.
Hikma shares currently trade on just 11 times 2022 forecast earnings, with a 2.5% dividend yield. City analysts expect profits to rise 10% in 2023. Based on these forecasts, the shares look cheap to me.
I’d buy the dip
FTSE 100 packaging group Mondi (LSE: MNDI) saw its share price fall by 20% when Russia invaded Ukraine. The reason for this is that Mondi’s Russian operations have historically generated around 20% of the group’s profits.
My guess is that these profits may be lost forever. But Mondi’s remaining business still looks attractive to me. Analysts’ forecasts suggest the group should be able to maintain its 15% operating profit margin and may still report profit growth this year.
There’s a risk that demand for Mondi’s packaging products could fall if we see a widespread recession. But my impression is that Mondi is a well-run business that will continue to perform well over the long term.
This FTSE 100 share looks good value to me on 10 times forecast earnings. There’s also a useful 4% dividend yield. I’d be happy adding Mondi to my portfolio at this level.
