2 dividend stocks that are dirt cheap right now

Many dividend stocks appear very good value to me in 2023, with high yields. And some of them look super cheap on fundamentals.

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It looks like the FTSE 100 could be on for record dividend payouts in 2023, with forecasts suggesting as much as £85.8bn in total. That makes me think it’s a great time to buy dividends stocks.

I see a lot of undervalued shares out there, offering high dividend yields. These two, in particular, look dirt cheap on traditional price-to-earnings (P/E) valuations.

Dirt

Talking of dirt cheap, my first pick profits from dirt. Well, valuable dirt, in the form of metals and minerals. The mining and commodities business is out of favour right now, and today I’m focusing on Glencore (LSE: GLEN) specifically.

We’re looking at a 7% predicted dividend yield here. That, alone, makes the stock look attractive to me. But what about its valuation?

Forecasts put Glencore shares on a forward P/E of only six. Other things being equal, that would be a super cheap valuation. Of course, other things are rarely equal. And stocks are often on low valuations when their outlook is problematic.

Earnings

Glencore’s earnings are expected to dip a bit over the next couple of years, so a lower P/E might be justified. But the dips would lift the P/E only to around seven or so, still about half the FTSE 100 average.

Commodities demand over the next two or three years looks uncertain right now. And uncertainty is often the biggest drag on share prices. So we could see further weakness in the Glencore share price in 2023.

But on these fundamental measures, the shares really do look cheap to me.

Insurance

I think insurance stocks are also good value now. And I reckon Legal & General (LSE: LGEN) stands out on an exceptional combination of P/E and dividend yield.

After a weak couple of years for the share price, forecasts put both measures at around seven. Again, that’s about half the average FTSE 100 P/E. And this time, there are no predicted earnings falls on the horizon.

The forward dividend of 7.3% is way higher than the market average too, leading to the rare valuation combination that caught my attention.

Economy

The risk, I think, comes from our uncertain economic outlook. Oh, and the pressure that puts on financial stocks in general.

The insurance sector can be cyclical, with volatile share prices. And dividends are perhaps not the most reliable, prone to being cut from time to time. Legal & General hasn’t cut its dividend in the last decade, mind, while others have.

Diversification

Again, I think Legal & General looks dirt cheap on fundamentals.

In fact, both of these are on my candidates list for my next purchase. And the best way I can see to balance the uncertainty and risk is to buy them as part of a diversified dividend portfolio.

That way, a down cycle in the commodities business should cause me less pain. And the same goes for a dip in financial sector sentiment.

And when those both happen together? I think that’s time to buy and lock in some solid long-term dividend yields.

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.

Alan Oscroft has no position in any of the shares mentioned. 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.

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