I reckon 2024 could be one of the best years ever to buy cheap FTSE 100 shares. But why? Well, I think they’re cheap, isn’t that enough?
Oh, fair enough, I need to explain a bit more. I see at least three good reasons to think our top-drawer stocks are great value now, and I’ll pick one to go with each of them.
Dividends
The main one is dividends. And I’m going with BT Group (LSE: BT.A) as my pick here, with a forecast 7% dividend yield for 2024.
Soon after the 2020 stock market crash, BT declared its intention to get back to a progressive dividend policy as soon as it could. And that’s been one of its key targets for many years now.
With earnings being a bit tight, it has come at the expense of the share price, which has lost more than 50% in five years. But with the price-to-earnings (P/E) ratio down around seven, I think it might have bottomed out.
BT’s debt mountain has to be the big risk. But the cost of dividends would only make a small scratch on it. And BT shareholders do love their dividends.
Valuations
Next up is valuation, and the banks look super cheap. Barclays (LSE: BARC) has the lowest price-to-earnings (P/E) ratio of the high street banks, at just 5.6. That’s close to a third of the FTSE 100’s long-term average.
I know high interest rates are pushing up the banks’ bad debt impairments. And high rates could still go on for longer than we fear. And I know Barclays’ exposure to US corporate banking adds extra risk, with the stock market over there perhaps a bit hot.
But in its latest FY results, Barclays announced a further £1bn in share buybacks. And it’s on for dividend yields of around 5%. Does that sound like a stock that deserves to be valued so low? I don’t think so.
Interest rates
I expect more FTSE 250 stocks to benefit from interest rate cuts than FTSE 100 ones. But housebuilders are an exception, and I pick Taylor Wimpey (LSE: TW.) as my example for this one.
The share price has recovered a bit in the past few months, but we’re still looking at a five-year drop of 13%. The valuation looks modest compared to profits forecast for the next couple of years. But that includes the depressing effect of high interest rates and the slowdown in demand.
More than any, I expect this sector to really benefit when mortgage rates tumble. And while there’s clear short-term risk from a weak market, I think we should consider buying before that happens.
Oh, and Taylor Wimpey pays good dividends too…
All three
In fact, looking back on these three, I think they’re all on low valuations and all offer good dividends. And I reckon all could benefit when interest rates fall and consumers have a bit more in their pockets. To me, they’re definitely worth considering.
