UK shares have been sold off sharply as worries over the US economy have mounted. But I’m not running for the hills. In fact, I’m looking for top dividend stocks to buy at knock-down prices.
I’ve been investing long enough to know that volatility’s part and parcel of share investing. I also know that, over time, the stock market’s always recovered, and that those who buy when prices are down have a chance to maximise their returns over the long term.
Unfortunately, I don’t have any spare cash in my investing account to make the most of last week’s market slump. If I did, here are two FTSE 100 dividend-paying bargains I’d buy today.
Aviva
When the US economy catches a cold, the whole world sneezes, as the saying goes. But I believe the fresh decline in Aviva (LSE:AV.) shares makes the company — which operates in the UK, Ireland and Canada — an even more attractive value buy.
The Footsie company now trades on a forward price-to-earnings (P/E) ratio of 10.5 times. And its dividend yield sits at 7.4%, more than twice the index average.
Despite the threat of US contagion, I think things are looking up for the financial services giant. Interest rate cuts last week will likely boost demand for its life insurance, pension, and other discretionary products. And more Bank of England trimming could be coming down the line very soon.
Aviva’s massive general insurance operations should continue to offset weakness elsewhere in the business. Although that weakness remains an issue, spending on house, car, pet and other policies remains largely robust at all points of the economic cycle.
This, in turn, means Aviva should continue to enjoy strong cash flows as premiums keep rolling in, giving it the strength to still pay market-beating dividends. Encouragingly, it’s already sitting on a huge pile of surplus cash, its Solvency II ratio at 206% as of March.
Aviva’s share price has shot 26% higher over the last year. I expect it to recover sharply from last week’s drop.
Phoenix Group
I’d also look to open a position in Phoenix Group Holdings (LSE:PHNX) if I had spare cash to invest today.
Last week’s market fall leaves the Footsie firm with a 10.2% forward dividend yield. This is one of the largest on the index. Meanwhile, a price-to-earnings growth (PEG) ratio of 0.3 suggests it’s also dirt cheap, based on predicted profits.
Any reading below 1 indicates a share is undervalued. Incidentally, the reading on Aviva shares sits at 0.5.
The beauty of both these shares is that their markets are expanding rapidly. Intense competition remains a threat. But they have an opportunity to deliver impressive long-term earnings growth. This, consequently, could feed into steadily rising dividends over the long term.
Speaking of which, City analysts expect dividends on Aviva and Phoenix shares to keep rising all the way through to 2026, at least. The latter’s Solvency II ratio of 176% as of December also gives it strong foundations to meet these sunny forecasts.
