Sinking share prices across the FTSE 100 have given dividend yields a big boost. As someone looking for ways make a healthy second income, I think this provides an excellent buying opportunity.
However, recent falls also leave plenty of value traps for me to avoid. So which of these UK dividend shares should I buy, and which should I leave on the shelf?
BP
Sinking oil values pulled the BP (LSE:BP.) share price lower towards the end of the week. The black gold producer has now dropped 19% in value from its 2023 peaks, struck back in March.
This means that shares currently carry attractive value, at least on paper. The company trades on a forward price-to-earnings (P/E) ratio of 5.8 times. It also carries a 4.6% dividend yield for this year, above the 3.7% average for FTSE shares.
But I’m not tempted to buy the oil major for my portfolio. And it’s not just because of an uncertain outlook for near-term energy demand. China’s patchy economic recovery and interest rate rises have all weighed on oil prices recently.
Fossil fuel businesses like this could become investor traps as the world transitions to green energy. BP is investing in cleaner sources and it plans to have 50GW of renewable energy capacity by the end of the decade. However, oil will remain the biggest game in town for the company for years to come.
Most of its development budgets remains geared towards developing oil projects. What’s more, the firm recently scaled back plans to cut its oil output to 40% of 2019 levels by 2030. This has been reduced to 25%.
Fresh oil production cuts from OPEC+ countries could give company profits a big boost. But so what? This is a UK share with a highly uncertain future.
Anglo American
I’d rather use any spare cash I have to invest in Anglo American (LSE:AAL). This is because I expect demand for the metals it mines to soar over the next decade. As an added bonus it offers a bigger near-term dividend yield than BP (at 5.3%).
This FTSE 100 share produces copper, nickel, and platinum group metals. Other commodities include iron ore and steelmaking coal. It is therefore in pole position to capitalise on fast-growing sectors like electric vehicles, consumer electronics, renewable energy, and construction.
Buying larger miners like this helps to reduce risk to me as an investor. Operational problems can be common and hugely expensive, and Anglo American isn’t immune to this. But its broad portfolio of assets — it owns 56 different assets in 15 countries — helps to reduce the impact at group level.
Recent share price weakness leaves the company trading on a forward P/E ratio of eight times. I think this low reading and its 5%-plus dividend yield makes Anglo American a top value stock.
