I’ve never seen so many mega-cheap FTSE 100 income stocks that I’d like to buy as I can today.
That’s not the result of a scientific survey, it’s based purely on how I feel when I work through the index looking for supremely buyable dividend income shares. There are loads of them. Many have sky-high yields and look really cheap, too.
Better still, I’ve got a brand-new £20,000 ISA allowance, and I’m keen to use as much of it as I can. I wish I could invest the whole lot today, but sadly, I’m not that rich.
Some difficult choices to make
This means I have to pick and choose my favourites, and I’m struggling to do that. There’s a whole bundle of great dividend income stocks I’d like to tip into my portfolio today and hold for 10 years or more.
I’m looking at you, Barratt Developments, with your cheeky 7.76% yield and cheap-as-chips valuation of 5.8 times earnings. Naturally, there are risks to buying this stock. The obvious one is that house prices may crash, hitting sales and revenues.
That’s also an opportunity, though, because if inflation peaks and interest rate falls, the crash may not be as brutal as many fear. I’m tempted by another house builder, Taylor Wimpey, which yields 7.80% and trades at 6.4 times earnings.
Big tobacco is still blowing out the dividends, with British American Tobacco yielding 7.74% and Imperial Brands close behind at 7.6%. They trade at 7.5 times and 7 times earnings respectively, which is dirt-cheap, obviously. Smoking is a dying industry but these dividends should still keep rolling along for years.
FTSE 100 insurers also offer solid dividends at a bargain price and relatively minimal risk. Aviva yields income of 7.29% a year while Legal & General tops that with 7.78%, while trading at a tempting 6.5 times earnings. Their share prices may go nowhere fast, but those dividends should compound over time and deliver a nice income stream when I retire.
I almost missed another insurer, Phoenix Group Holdings, which yields 9.04% and trades at 6.9 times earnings. So much choice! And I haven’t even mentioned long-term dividend income hero Vodafone Group, which yields 8.65% and trades at 9.4 times earnings.
Then there are stocks that I hold but I’d like to buy more of. Like Rio Tinto, which yields 7.09% and trades at 8.5 times earnings. Or asset manager M&G, which offers the highest yield on the index at a thumping 10.05%.
I’m in danger of getting carried away here. While a high dividend yield is exciting, it can also be a sign of a company in trouble. Many of the firms listed here have delivered scant share price growth in recent years, or fallen sharply. That’s why they’re so cheap.
The other danger is that these dividends are too high and can be cut. Rio Tinto did it recently. So did housebuilder Persimmon.
I reduce the risks by purchasing a balanced spread of stocks. Also, while I’m impatient to go on a spree today, once they’re safely in my portfolio, I’ll calm down and hold them years and years. Now I just need to scrape together the cash, do my due diligence and decide where to start. Probably Legal & General.
