These are great days for fans of cheap shares, as the FTSE 100 has been full of them. Buying them has been like shooting ducks in a barrel (not that I would, poor ducks). It’s simply a case of taking my pick.
I spent summer and autumn loading up my new self-invested personal pension (SIPP) with what looked to me like the biggest bargains on the FTSE 100. They were all trading at less than eight times earnings (where 15 is seen as fair value).
I didn’t do this in anticipation of making a quick killing, I thought it may take several years for them to recover their lost value. Yet I’m already nicely ahead. And this is only the start of what I hope will be a long and beautiful relationship.
A good start
Some of my stock picks are already up more than 25% since I made my first purchase, although my total return is lower because I averaged up as my faith in them grew. The dividends are starting to roll in too, and I’m hoping for much more to come.
I bought housebuilder Taylor Wimpey twice in September and once in November, and I’m already up 16.75% after charges. I reinvested my first dividend of £79.55 on 21 November. I bought the shares when the stock was yielding more than 7%, so it should prove a rewarding ride.
I had a nibble at fund manager M&G in autumn 2022 and I’m up around 30% since then, once its mighty 9% yield is included. I came back for bigger bites in July, September and November this year, and these handed me a £133.93 divi on 7 November. I bought more on 30 November. If I had any cash left I’d buy it again.
I had high hopes for insurer and fund manager Legal & General Group, which like M&G, I thought would benefit when interest rates peaked and investor confidence returned. I bought its shares in April, July and August, and pocketed a £100.09 dividend on 28 September. I’m up 9.75% in total, but these are early days.
The income is rolling in
Guess what? The Lloyds Banking Group share price is finally rising too. We haven’t seen much of that over the last decade. From being in the red on my June and September purchases, I’m suddenly up 8.85%, including the £40.34 dividend I reinvested on 14 September.
The one shock was paper and packaging specialist Smurfit Kappa Group, whose shares crashed more than 10% shortly after I bought them in June, after markets decided it had overpaid for a US acquisition. Once I got over the shock, I averaged down and now I’m up 5.42% overall (and haven’t received a dividend yet).
Of course, these are early days. If the recent mini-rally fades, my paper gains could quickly turn into paper losses. That’s fine. I plan to hold the shares for years, decades ideally. While it’s a confidence booster to see them get off to a bright start, what matters is how well they do in the longer run. I’m optimistic here too. And I will only get more optimistic, every time a new dividend hits my account.
