I can’t remember seeing so many FTSE 100 dividend shares available at such incredibly cheap valuations. It feels like a terrific opportunity to load up a Stocks and Shares ISA then wait for markets to recover.
That may take time with interest rates expected to stay high throughout 2024. However, history shows it’s impossible to keep share prices down for long. Here are five stocks I’d buy today that would give me an incredible rate of income from the first year.
Insurance conglomerate Phoenix Group Holdings now offers the most generous yield on the FTSE 100 at 10.96%. Normally, double-digit yields scare the beans out of me, but there’s a decent chance this one’s sustainable.
Great value out there
Even if the downturn drags on and the board is forced to cut shareholder payouts, it’s still likely to offer a juicy income stream. The stock is also really cheap, trading at just 5.7 times earnings. Investors are down on the financials sector right now but that will change.
Love tobacco stocks or hate them, nobody can argue with their dividends. Imperial Brands now yields 8.29% a year but trades at a lowly 6.4 times earnings. Its share price has fallen, as rising bond yields offer investors a rival income stream.
They can’t match this one though. The Imperial Brands share price may never rise much, given the long-term decline in smoking, but that’s reflected in its dirt cheap valuation.
I’m fascinated by fund platform and adviser Hargreaves Lansdown, a former stock market darling that’s lost its charm.
Hargreaves faces a heap of challengers, led by abrdn-owned Interactive Investor and AJ Bell. Volatile stock markets have hit customer inflows and assets under management. Yet it has few problems gaining new customers, or retaining them.
The share price looks cheap by its standards, trading at 10.9 times earnings, while yielding 5.6%. When markets get their mojo back, Hargreaves Lansdown could show us what it’s made of.
Lots of choice out there
I’m also intrigued by renewables giant SSE, which trades at just 9.2 times earnings and yields 6.33%. Although a utility, this isn’t without risk, as it pours capital into building wind farms and is at the mercy of the weather, which hit renewables output lately. The road to net zero will remain bumpy but we need SSE to help lead us there.
Packaging group DS Smith is my final dividend pick. It yields 6.52% and, once again, it’s cheap trading at 6.4 times earnings. Its shares have been hit hard by the slide in e-commerce since its heyday during Covid lockdowns. DS Smith has comeback potential though.
If I divided a £20,000 Stocks and Shares ISA equally between these five dividend payers I would generate an average yield of 7.54%. That would give me income of £1,508 in the first year. With luck, that should rise over time, as companies increase shareholder payouts and I reinvest my income to buy more stock.
As ever, there are no guarantees. Dividends can be cut at any time. But my five-way split would spread the risks nicely.
