Like investing legends such as Warren Buffett, I love to buy quality shares when they’re on sale. Right now, valuations on UK stocks sit at historic lows as investors flock to foreign equities. The dividend yields on many top FTSE 100 and FTSE 250 shares have shot through the roof.
To quote Buffett: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” And the following two shares in particular have grabbed my attention: NextEnergy Solar Fund (LSE:NESF) and Rio Tinto (LSE:RIO).
As the table below shows, each trades on a rock-bottom price-to-earnings (P/E) ratio and carries a market-beating dividend yield.
| Stock | Forward P/E ratio | Forward dividend yield |
|---|---|---|
| NextEnergy Solar Income | 8 times | 12.1% |
| Rio Tinto | 8 times | 7.1% |
If broker forecasts prove correct, a £15,000 lump sum invested equally across these UK shares would deliver me a £1,440 passive income over the course their financial years. And I’m confident they will steadily grow dividends over time, too.
Green machine
NextEnergy Solar Fund has fallen in price more recently as hopes of imminent interest rate cuts have faded. Higher rates weigh on the fund’s net asset value (NAV) and push up its borrowing costs.
I think the fund looks mighty attractive at current prices, though, and especially because of that double-digit yield. Renewable energy stocks like this have tonnes of investment potential as the world switches over from dirty fossil fuels.
While 85% of its capital is invested in UK assets, I like its decision to diversify into overseas markets like Italy, Spain, and Portugal. This helps to reduce risk: poor weather conditions in Britain, for example, has a reduced impact on overall profits.
Today NextEnergy also trades at a near-30% discount to its NAV. This solidifies its place as a brilliant FTSE 250 bargain in my mind.
Major miner
Mining companies like Rio Tinto also stand to profit greatly from the green energy transition. As sales of electric vehicles take off, for instance, and investment in renewable energy steadily increases, demand for industrial metals is tipped to follow suit.
FTSE 100-quoted Rio Tinto produces multiple commodities for which consumption is predicted to rocket in the coming decades. These include iron ore, copper, aluminium, and lithium. In fact, the major role it’ll play in the clean energy revolution is why I bought it for my Stocks and Shares ISA back in 2022.
The company’s impressive scale and financial strength puts it in good shape to exploit this opportunity as well. It enabled the company to acquire Argentinian lithium miner Rincon two years ago for $825m. And it is allowing the firm to invest vast sums to expand its copper operations. This includes the gigantic Oyu Tolgoi asset in Mongolia.
Commodity markets are famously volatile, and miner profits can suffer badly as a consequence. But over a long time horizon I think Rio Tinto will generate stunning returns for shareholders like me.
