2 cheap shares I just had to buy

These two cheap shares have fallen well below their 2023 highs. I just bought into these great businesses for their bumper dividends and future growth.

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From June to December of 2022, my wife and I created a new family portfolio of cheap shares. During this period, we added 17 new stocks to our existing holdings. After receiving a tax-free windfall earlier this month, we bought 10 more undervalued UK shares.

Unfortunately, my timing could hardly have been worse, as August has been the toughest month for global stock markets in almost a year. The UK’s FTSE 100 index is down by 4.7% since 31 July, while the US S&P 500 index has lost 4% this month.

Here are two stocks we bought earlier this month for their long-term prospects. To me, each share has the potential to produce superior returns for my family over the coming years.

#1: BP

It took a lot of convincing for me to get my wife to buy stocks in oil & gas supermajor BP (LSE: BP.) After all, BP is a no-no stock for ESG (environmental, social and governance) investors who care about our planet. But I believe its huge cash flows will help the group to transition towards a low-carbon future.

We paid an all-in price of 484.1p per BP share. On Friday, 25 August, the shares closed at 475.6p, so we’re sitting on a paper loss of 1.8%. Here’s how this mega-cap stock stacks up today:

Share priceMarket valueEarnings multipleDividend yieldDividend coverOne-year changeFive-year change

What drew me to BP was its healthy dividend yield, covered more than four times by trailing earnings. Also, the oil price is close to the 2023 highs it hit earlier this month. However, with global growth looking vulnerable, commodity prices could suffer later this year. Hence, I fully expect a bouncy ride ahead for this cheap stock.

#2: Glencore

Glencore (LSE: GLEN) is another company that doesn’t fare well in ESG ratings. That’s because as a global miner and commodities trader, it extracts and sells various natural resources across the globe.

As with BP, we bought Glencore shares for their ability to generate market-beating dividends over time. Here are this group’s current share fundamentals:

Share priceMarket valueEarnings multipleDividend yieldDividend coverOne-year changeFive-year change

Having paid 435.1p a share for our Glencore stake, we’re nursing an early paper loss of 2.1%. But that’s only about a quarter of the yearly cash yield these shares offer.

However, the company’s cash payout is covered under twice by historic earnings. Hence, I suspect this payout might come under pressure if metals prices don’t recover in 2023-24. Also, Glencore has previous form for cutting its dividend, having done so in 2015, 2016 and 2020.

Nevertheless, I see Glencore as a key natural-resources holding for the years ahead. In the march towards a low-carbon future, I expect it to be a big supplier of core materials. And I think the next five years will be rosier for the group than the past half-decade.

OK, worries about China’s economic growth, combined with fears of a European or even global recession, have hit natural-resources stocks this year. But with a timescale of a decade-plus, I’m hoping that these two shares will come good over time!

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.

Cliff D’Arcy has an economic interest in BP and Glencore shares. 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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