I think investors looking for cheap FTSE 100 stocks to buy need to pay these UK blue-chip shares close attention.
Each trades on a rock-bottom price-to-earnings (P/E) ratio and carries a market-leading dividend yield. Here’s why I’m aiming to buy them both for my own portfolio at the next opportunity.
Phoenix Group Holdings
| Phoenix Group’s share price | 534.4p |
| 12-month price movement | – 7% |
| Market cap | £5.3bn |
| Forward price-to-earnings (P/E) ratio | 11.3 times |
| Forward dividend yield | 10.2% |
| Dividend cover | N/A |
Phoenix Group Holdings (LSE:PHNX) — with its double-digit dividend yield and strong record of dividend growth — suggests it could be a great buy for passive income in the new year.
On the one hand, I’m concerned about the lack of dividend cover at Phoenix. In fact, expected earnings of 47.2p per share for 2024 are lower than a predicted 54.3p shareholder payout.
However, the firm’s impressive cash generation suggests it should be well-placed to meet this year’s forecast and continue paying large dividends thereafter.
In November, Phoenix upgraded its cash generation target, from £1.3bn-£1.4bn to around £1.8bn. This also pushed its cash target for the three years to 2025 to £4.5bn from £4.1bn previously.
This is a FTSE 100 share I think could deliver exceptional returns over the long haul. Soaring older populations across its UK and overseas markets mean that demand for its savings and pensions services should also march higher.
What’s more, the company’s robust balance sheet gives it added scope to bolster earnings (and thus dividends) through mergers and acquisitions. Last year it made its first ever cash-funded acquisition with the purchase of Sun Life of Canada UK for £248m.
Aviva
| Aviva’s share price | 433.7p |
| 12-month price movement | – 12% |
| Market cap | £11.9bn |
| Forward price-to-earnings (P/E) ratio | 9.6 times |
| Forward dividend yield | 8% |
| Dividend cover | 1.3 times |
Projected dividends at life insurance giant Aviva (LSE:AV.) appear more secure than those of Phoenix Group, based on earnings forecasts. But as the table above shows, dividend cover still sits below the widely accepted safety benchmark of 2 times and above.
Yet I believe the company will deliver the large shareholder payouts analysts are expecting. Like its FTSE 100 peer, the company is cash rich and its Solvency II capital ratio sat at an impressive 200% as of September.
Aviva’s transformation in recent years has given it the ammunition to deliver market-leading dividends and launch hefty share buybacks. It has also enabled the acquisition of high growth and capital light businesses to boost profits and dividends. Such companies now make up more than half of Aviva’s portfolio.
Ageing populations in its UK, Ireland and Canadian markets should also drive healthy demand for its financial services. And its digitalisation strategy gives it a chance to grow profits better than its rivals through superior cross-selling of its pensions, insurance and investment products.
Competition is fierce across its markets. And the business will have to paddle hard to succeed. But I believe Aviva will remain a strong passive income share in 2024 and beyond.
