Buying cheap FTSE 100 shares after the recent stock market crash may not sound like a good idea right now. After all, the economy is likely to face continued uncertainty in the short run.
However, there may be opportunities for long-term investors to snap up bargains in the market today. With many blue-chip stocks trading on low valuations, they’ve the potential to produce strong returns over the coming years.
Here are two FTSE 100 dividend champions that appear to offer wide margins of safety right now.
FTSE 100 value stock Aviva
Recent trading updates from Aviva (LSE: AV) show the FTSE 100 insurance group has been able to continue to operate despite the coronavirus pandemic.
While the company thinks it’ll have to pay out £160m of claims related to the pandemic, management is confident the business can afford this expense.
With Aviva’s balance sheet relatively healthy, it appears to offer less risk than many of its sector peers. And customers are still turning to the business to provide their insurance needs.
During the first quarter of 2020, general insurance sales increased 3%, and life insurance new business increased by 28%.
Of course, the value of new business could drop over the next few months as the UK economy struggles with the pandemic’s fallout. However, at current levels, it looks as if investors are already pricing in the worst-case scenario for the company.
Shares in the FTSE 100 stalwart are trading at a price-to-book (P/B) value of just 0.6. That suggests the stock offers a wide margin of safety at current levels. As such, the FTSE 100 company could deliver healthy long-term returns.
Legal & General Group
Another FTSE 100 share that appears to have substantial long-term recovery potential is insurance company Legal & General Group (LSE: LGEN).
Like FTSE 100 peer Aviva, Legal expects to see a significant financial impact from coronavirus. Furthermore, it anticipates coronavirus will continue to impact on its business prospects for some time.
Nevertheless, the company is well capitalised with a strong balance sheet, and it continues to win new business. With these strong fundamentals in place, management has decided to maintain the firm’s dividend policy.
Unlike other FTSE 100 stocks, L&G announced a 7% increase in its final dividend for 2019. At a time when many other FTSE 100 income champions are cutting dividends, this is a positive mark for the business.
Despite this development, the stock’s decline of 33% since the beginning of 2020 highlights investor sentiment is extremely weak. This could persist in the short run, but it could present long-term investors with an opportunity to buy a high-quality business while the shares offer a wide margin of safety.
As well as its capital gains potential, after recent declines, shares in the FTSE 100 group support a dividend yield of nearly 10%. Therefore, it looks as if investors will be paid to wait for the firm’s recovery.
Legal isn't the only income stock I'd buy right now. There are a handful of other business that also look appealing after recent declines.
With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…
As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.
With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?
Fortunately, The Motley Fool is here to help…
Our analyst has unearthed what he believes could be a very attractive option for income- seeking investors – a company that, in his view, boasts a ‘reliably defensive’ business model, combined with a current forecast dividend yield of 4.2% to boot!*
But here’s the really exciting part…
This business even has form in riding out this kind of situation, too… having previously increased sales and profits back in 2008 and 2009 when the world was gripped in the deepest economic crisis since the Great Depression.
*Please be aware that dividends are variable and not guaranteed.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.