2 dirt cheap, high-yield FTSE 100 shares I’d love to buy right now

These high-yield FTSE 100 shares have slumped in value this year. Here’s why I’d buy them in my Stocks and Shares ISA.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Bearded man writing on notepad in front of computer

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m building a wishlist of top FTSE 100 shares to buy when I next have cash to invest. Here are two I think are too cheap to ignore.

National Grid

Power transmission business National Grid (LSE:NG) could be one of the best shares to buy during this tough time for the UK and global economies. The essential service it provides means revenues and cash flows should remain broadly robust, giving it the means to continue paying above-average dividends.

The stock’s defensive qualities are obvious. But the ways it will benefit from growing demand for green energy attracts less interest. As a long-term investor this is of massive importance to me.

In order to meet decarbonisation goals, the amount spent on electricity transmission infrastructure between 2023 and 2030 will need to be five times higher than that of the past three decades. This means serious asset base growth at National Grid that could dive profits and dividends higher for years to come.

Given all of the above, I think a forward price-to-earnings (P/E) ratio of 14.5 times looks pretty low. The company’s 5.9% dividend yield for this financial year (to March 2023) is also quite attractive. I think it’s a top buy despite the impact of higher-than-normal interest rates on its debt servicing costs.

Financial services giant Legal & General (LSE:LGEN) is one of my biggest purchases in 2023 following its share price decline. Further sustained weakness means that it still looks cheap, the business trading on a forward P/E ratio of just 9.9 times.

The FTSE firm’s low valuation reflects investor fears that revenues could slump as the global economy struggles. I’d argue though that recent robustness suggests Legal & General shares deserve a higher rating. Operating profit for the first half remained basically unchanged year on year at £941m.

I believe the share price here can recover strongly over the long term. This is chiefly because, as life expectancy rises and elderly populations rapidly grow, demand for retirement and investment products will follow suit.

Legal & General sells a vast array of different financial products. This gives it multiple ways to capitalise on this demographic opportunity and reduces risk by reducing dependence on a certain asset class.

The group’s wide geographic wingspan could also give it the scope to deliver huge profits. It estimates that there are more than £6trn worth of pension liabilities across its UK, Irish, US, Canadian and Dutch marketplaces, for example, only a fraction of which have been transferred to insurance companies.

I also like the company because of its robust balance sheet. A Solvency II ratio of 230% (as of June) means that, even if earnings growth disappoints, the company should still have the means to continue paying gigantic dividends, at least in the near term.  

City analysts agree with my assessment. In fact, they expect the company to meet its objective of raising dividends by 5% over the next two years at least. This results in gigantic yields of 9.1% and 9.6% for 2023 and 2024 respectively.

Like National Grid, I think Legal & General shares could be a great way for me to make serious passive income.

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.

Royston Wild has positions in Legal & General Group Plc. 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.

More on Investing Articles

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »