After recent falls, I can see a heap of FTSE 100 shares that I’d like to buy to generate passive income for my retirement. If I have enough money at my disposal, I would fill my boots in July, taking advantage of today’s low prices.
I’m sorely tempted to top up my stake in Lloyds Banking Group. It looks super cheap trading at around 42p a share. In recent months 45p has been my buying trigger. Lloyds is turning into the dividend income machine of old, with a forecast yield of 6.6%, covered 2.7 times by earnings.
Shopping for shares this summer
Debt impairments may rise if house prices crash, but higher base rates will boost the bank’s net interest margins. Plus I’m holding for a minimum 10 years, so I have time to overcome today’s uncertainties. The only thing stopping me is that I have more exposure to its fortunes than any other FTSE 100 stock.
I’d like to make a move into the healthcare sector, by purchasing GSK. But today’s 3.14% yield doesn’t impress me much, while I would expect its valuation of 10.1 times earnings to be even lower given that its shares have fallen 22.34% in the past year. At some point I think GSK will come good, but I can see better value out there right now.
Which brings me to the FTSE 100 stock that I am keen to buy, global mining giant Rio Tinto (LSE: RIO). I have a small stake in the £81bn company, and would like to own more. Now looks like a good time to swoop.
I hate to buy a share on the back of a strong run, due to the risk of overpaying and arriving late to the party. That isn’t a problem here, Rio Tinto’s share price has fallen 13.58% in the past six months to stand roughly where it did a year ago.
Rio Tinto has been hit by disappointment over China’s post-Covid reopening, which was supposed to fire up its biggest customer. Yet after a strong first quarter China has slowed, amid a troubled property market, falling industrial output and reduced global demand for its exports.
JP Morgan has just cut China’s 2023 growth prospects from 5.9% to 5.5%, with an obvious knock-on effect on Rio Tinto. On the plus side, the Chinese authorities are lining up stimulus. The downside is that the US and Europe are now on the brink of recession.
Rio’s management also has to meet the net zero challenge and is investing $1.1bn in a low-carbon aluminium smelter to technology. While grants are available, we can expect more capex demands like this one.
I’m ready to buy in July
It sounds like I’m talking myself out of the stock but these are short-term challenges, and I’m investing for the long-term. As a result of these problems, Rio Tinto’s shares are trading at a bargain valuation of just 7.7 times earnings. That looks like a good entry point.
Better still, the stock is forecast to yield 7.4%, covered 1.7 times by earnings. And that’s after cutting its dividend by 50% in February. I don’t have enough exposure to the metals and mineral sector in general, and Rio Tinto in particular. I’ll change that in July.
