How I’d start investing in great value UK shares with £10,000 today

Harvey Jones can see a heap of UK shares he’d like to add to an ISA today. Many combine low valuations with sky-high dividend yields.

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I wish I had £10,000 to invest in UK shares at the moment. With the FTSE 100 retreating from its all-time high, now looks like a great buying opportunity.

Some may find that odd. Isn’t the best time to buy shares when prices are going through the roof? Personally, I take a different view. My favourite time to buy is when the market’s dipped and top blue-chips are trading at a discount.

FTSE 100 shares aren’t quite as cheap as they were a year ago. That’s hardly surprising as the index is up 8.13% since then. With dividends on top, the total return is around 12%.

Time to buy FTSE 100 stocks?

However, I don’t buy index trackers. I’m building a portfolio of individual FTSE 100 shares, and many of the stocks I bought last summer and autumn have done much better than that. My biggest winner, 3i Group, is up 52.74% in the last year.

Paper and packaging specialist Smurfit Kappa Group (LSE: SKG) has been quietly doing the job too. I bought it on 6 June last year because I thought it looked great value, trading at less than six times earnings while yielding more than 4%.

I was unlucky with my timing. Almost immediately, the group announced plans to acquire US-based rival WestRock, but the market decided it had overpaid. The share price dropped 10%. My response? To buy more shares at the lower price. And I’m glad I did.

The Smurfit Kappa share price is now up 32.04% over one year, with dividends lifting the total return above 35%. Obviously, it’s no Nvidia. Or Rolls-Royce, for that matter. But that doesn’t worry me too much.

I don’t buy shares with the intention of banking a quickfire gain. I look for companies that have potential to deliver share price growth and dividend income over years and, with luck, decades. I think Smurfit Kappa can do that. It’s benefited from the shift to e-commerce, with all the extra packaging that entails. I don’t see that trend reversing.

Dividends and growth

And while markets fretted over its WestRock acquisition, I’m thrilled it’s getting a foot in the massive US market. Yes, there are signs the US is slowing. And yes, rising raw material costs have squeezed margins.

However, with the shares trading at just 12.7 times earnings, I still think Smurfit Kappa looks great value. But it isn’t the only bargain on the index, as my table shows. Many come with high yields too.

StockPrice-to-earnings ratioYield
British American Tobacco6.5x9.65%
BT Group7.6x5.45%
HSBC Holdings7.7x6.92%
Imperial Brands7.2x7.29%
Lloyds Banking Group7.3x5.01%
NatWest Group6.4x5.44%
Rio Tinto9.2x6.53%
DS Smith8.2x5.11%

If I had £10,000 to invest today, I’d first look to plug gaps in my portfolio by targeting shares I don’t own, such as oil giant BP, or China–focused bank HSBC Holdings. If the stock market dips further, I’ll buy more bargain UK shares.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Harvey Jones has positions in Lloyds Banking Group Plc and Smurfit Kappa Group Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., DS Smith, HSBC Holdings, Imperial Brands Plc, Lloyds Banking Group Plc, Nvidia, and Rolls-Royce 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.

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