No savings? I’d start off an empty ISA by considering these 2 dirt cheap dividend shares

Despite a resurgent UK stock market, its possible to find cheap-looking dividend shares, such as these that I’d consider now.

| More on:
Investor looking at stock graph on a tablet with their finger hovering over the Buy button

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.

The UK stock market has burst into life lately, but there are still dividend shares around that look like decent value.

For example, with its share price near 249p, Legal & General (LSE: LGEN) has a forward-looking dividend yield for 2025 of around 9%. That compares to the aggregated yield of the FTSE All-Share index of about 3.7%.

Maybe the high yield is making some investors wary of the financial services company.  After all, anything above 7% often looks vulnerable to director slashing!

Good trading

However, the business is trading well, and the stock has been range-bound for a decade. And it’s possible for the yield to fall because of a rising share price rather than a falling dividend.

But City analysts expect the shareholder payment to increase by over 5% both this year and next. Those rises follow a strong multi-year record — the company didn’t even trim the dividend in the pandemic year.

Nevertheless, Legal & General’s earnings and cash flow history shows volatility. That’s probably because of the cyclicality in the business and the financial sector as a whole.

There’s risk in that situation for shareholders — one decent general economic downturn could torpedo the firm’s earnings, cash flow, dividends and share price.

One of the outcomes of the uncertainty is the low-looking valuation. I reckon it’s the market’s way of accounting for volatility in the trading figures. Because of that, it seems unlikely the valuation will ever become eye-wateringly high. But if we see another bubble-like bull market, I could easily be wrong.

An improving economy

I’m bullish about the prospects for the economy over the next few years. Inflation is back under control and it looks like we could see interest rate cuts ahead. Meanwhile, energy costs are lower, supply-chain challenges have been easing, wages have risen for many, and people could soon have more money in their pockets.

If that happy set of circumstances gathers pace, it’ll help many businesses to thrive, including those in the financial sector such as Legal & General.

Back in March, with the full-year report, the company delivered an upbeat outlook statement. So that makes the business well worth further research and consideration.

Legal & General looks attractive to me, but so does (LSE: MONY), which is soon to change its name to MONY.

Earnings have been recovering well after falling in 2020 and 2021 because of the pandemic. In 2025, analysts expect them to exceed 2019’s level.

Strong brands

Meanwhile, the company also didn’t cut its dividend when Covid struck. The firm’s operational strength is underpinned by several strong brands, such as MoneySuperMarket, MoneySavingExpert, Quidco, Decision Tech, TravelSupermarket and Icelolly.

With the share price near 235p, the forward-looking yield is near 5.6% for 2025 and that looks attractive to me.

There’s some risk that competition in the future may eat into the company’s market share. But recent outlook statements have been upbeat – so far, the firm’s brands have been hard for competitors to crack.

I’d consider both stocks now for inclusion in a diversified portfolio within a Stocks and Shares ISA.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Group Plc. 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

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Nvidia stock is becoming more affordable!

Nvidia stock is up 2,500% over five years, but the chip giant’s share split -- announced during its earnings report…

Read more »

Investing Articles

Are Rolls-Royce shares good for passive income?

Our writer is getting mixed messages about the Rolls-Royce dividend. But whatever happens, he thinks passive income hunters will be…

Read more »

Investing Articles

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »

Satellite on planet background
Investing Articles

At just under £14, can BAE Systems’ share price still be a prime FTSE 100 bargain? 

Despite its bullish price run, BAE Systems’ share price still looks undervalued to me and appears set for strong growth.

Read more »

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »