10%+ dividend yields! Should I buy these cheap UK shares for a second income?

Dividend yields have leapt across the London Stock Exchange while P/E ratios have tumbled. Could these FTSE 100 and FTSE 250 stocks 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.

Smartly dressed middle-aged black gentleman working at his desk

Image source: Getty Images

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.

I’m searching for UK shares that offer pulse-racing value. Here are two dirt-cheap dividend stocks I’m thinking of buying following stock market volatility.

Rio Tinto

Rio Tinto’s (LSE: RIO) share price has slumped as commodities prices have come under pressure. This particular FTSE 100 stock produces a wide range of raw materials including copper, aluminium and lithium. But it generates around 75% of group earnings from iron ore.

This creates significant danger as worsening demand and supply dynamics for the steelmaking ingredient depress prices. Iron ore shipments from Brazil, for example, jumped 8.7% year on year in September to two-year highs. Meanwhile, demand for the material is slipping as Asian steel mills curtail production.

Prices of Rio Tinto’s key commodities are in danger of severe cooling moving into 2023. But from a long-term perspective, I believe Rio Tinto’s profits outlook remains super attractive.

The company’s wide range of commodities give it exposure to several white-hot growth sectors. This in turn could power profits — and consequently shareholder returns — through the roof.

Copper and lithium demand should soar over the next decade as electric vehicle build rates pick up. Borates sales could rocket as sectors like consumer electronics, agriculture and construction grow. And its iron ore operations should benefit from urban-related construction in developing markets.

Rio Tinto’s share price is actually up fractionally from levels at the start of 2022. But I think it’s descent since the spring represents an attractive dip-buying opportunity.

It’s why I bought the company for my Stocks & Shares ISA in June. And at current prices of £50 per share, I’m thinking of buying more.

Rio Tinto trades on a forward P/E ratio of 6 times. It also boasts an 10.3% dividend yield for 2022.

Vistry Group

Levels of uncertainty around the housing market have spiked in the past fortnight. Share prices across the homebuilding sector have stabilised following an initial slump, but businesses like Vistry Group (LSE: VTY) are in danger of fresh plunges.

Mortgage rates are soaring in the aftermath of late September’s ‘mini budget.’ This is putting extra pressure on homebuyers’ budgets and threatening to derail property sales.

Rates on two-year and five-year fixed mortgages have soared to 12- and 14-year highs respectively above 6%. They’re predicted to keep rising too as the Bank of England acts against runaway inflation.

I own several housebuilding stocks. In fact, I bought Persimmon shares over the summer. And it’s clear to me that the risks facing these businesses has risen considerably of late.

But, at current prices, UK shares like Vistry look ultra-tempting. The FTSE 250 business trades on a P/E ratio of just 4.1 times and boasts a 12.5% dividend yield.

I might hold off buying Vistry shares right now until the near-term trading picture becomes clearer. Credit Suisse has advised that house prices could fall as much as 15%. But I believe the long-term outlook here remains solid, given Britain’s severe homes shortage and disjointed housebuilding policy.

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.

Royston Wild has positions in Persimmon 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

Young black man looking at phone while on the London Overground
Investing Articles

This 10.6% yielder beats every dividend share on the FTSE 100. Can it last?

Harvey Jones couldn't resist the double-digit yield on offer from this FTSE 100 stock. Now he'd like to get some…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

With the FTSE 100 flying, I love the look of this company

The FTSE 100 index has been in rally mode over the last few months, but I think one of it's…

Read more »

Investing Articles

17% of my Stocks and Shares ISA is invested in these 2 UK shares

Stephen Wright looks to focus on investments in companies that have strong competitive advantages. And two UK shares stand out…

Read more »

Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA into Lloyds shares

Harvey Jones bought Lloyds shares last year and is kicking himself for failing to buy even more of them. The…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Apple is still my favourite company in the S&P 500, here’s why

Apple recently unveiled a lot of new software at a developer conference. Here's why the tech giant is still my…

Read more »

Investing Articles

5 great value UK companies I’d buy in a Stocks and Shares ISA and aim to hold for decades 

Harvey Jones is getting to work on his Stocks and Shares ISA. He thinks these five firms have solid income…

Read more »

Value Shares

Are GSK shares a bargain after falling 11%?

GSK shares have taken a hit in recent weeks due to Zantac uncertainty. Here, Edward Sheldon looks at whether they’re…

Read more »

Investing Articles

Nearing £5, could the Rolls-Royce share price hit £6?

The Rolls-Royce share price has soared in the past year. Our writer thinks there could be a strong runway ahead…

Read more »