Investing in FTSE 100 dividend shares is a tried-and-tested strategy for potentially building a lucrative long-term income stream. After all, the index is home to a 10 companies boasting yields of 7% and above at the time of writing.
What’s more, in a recent report comparing stock market valuations for the US, UK, Europe, Japan and Emerging Markets, fund manager Schroders found that across multiple metrics, the UK stock market is comparatively cheaper than other markets.
Combined with the prospect of falling interest rates as soon as inflation is under control, could this point to a once-in-a-decade chance for me to hoover up high-yield FTSE 100 shares at a discount?
Schroders’ report analysed a range of metrics. This included CAPE (cyclically adjusted price to earnings), forward price-to-earnings (P/E), trailing P/E, price-to-book and dividend yield.
Once calculated, the report compared these ratios to their 15-year median. The overarching result was that valuations continue to favour ex-US (i.e. non-US) markets, particularly the UK.
The UK stock market scored well on every metric with the exception of CAPE, which stands at 9% above its 15-year median.
Attractive amid volatile conditions
Investors like me are all too aware that UK stock market returns have lagged behind international peers for some time.
This is partly thanks to the dismissal of British shares as being boring and lacking exposure to exciting sectors like technology.
Nevertheless, this indicates that now could be an ideal opportunity for me to buy undervalued FTSE 100 shares.
In any case, amid a tumultuous economic environment, I value solid companies that can churn out reliable dividends.
Generous dividends
On top of being potentially undervalued, many Footsie shares boast attractive dividend yields. In fact, the UK’s blue-chip index offers a forward dividend yield of 4% a year.
Moreover, in 2022 AJ Bell expected almost every firm in the index to pay cash dividends to their shareholders.
Some companies pay out more dividends than others, and some firms have more sustainable payouts than others.
As such, I tend to favour companies such as Legal & General, Taylor Wimpey and British American Tobacco. I particularly admire these three for their generous yet sustainable dividend yields.
While no dividends are guaranteed and past performance is not an indicator of future results, currently each company has an attractive yield coming in above the 7% mark.
An ideal time to boost long-term passive income
Considering the above, I think this genuinely could be a once-in-a-decade opportunity for me to buy undervalued dividend shares.
Investing in high-yield UK stocks while they’re cheap would provide me with a major boost to my passive income. After all, it would enable me to capitalise on the low valuations I see on offer.
As a result, if I had some spare cash lying around, I’d hoover up as many cheap FTSE 100 dividend shares as possible as part of my long-term strategy to earn a passive income.
