Following this year’s stock market crash, many shares continue to trade at low levels and offer significant value. With that in mind, today I’m going to take a look at two cheap UK shares. They both yield more than 9% and seem to offer a margin of safety.
Stock market crash bargains
Insurance group Direct Line (LSE: DLG) recently told investors that due to a decline in the number of cars on the road in the first half of 2020, it would be paying a special dividend out of excess profits.
The decision to repay investors has made Direct Line one of the best cheap UK shares for income investors to buy today.
City analysts have the company paying a total dividend of 32.5p for 2020, which gives a dividend yield of 11% on the current share price.
What’s more, the stock appears to offer a wide margin of safety at current levels. While shares in the insurance group have recovered from their stock market crash lows, they still look cheap compared to the rest of the market.
Indeed, shares in Direct Line are currently changing hands at a forward price-to-earnings (P/E) multiple of 11. That’s compared to the market average at 14.
Considering the company’s recent dividend announcement, and better-than-expected trading performance in the first half of the year, I think shares in Direct Line warrant a higher valuation.
As such, now could be an excellent time to buy this stock as part of a basket of cheap UK shares.
Cheap UK shares on offer
Another bargain I have my eye on is Legal & General (LSE: LGEN).
Legal is one of the UK’s top income stocks. It has held on to this position throughout the coronavirus crisis and March’s stock market crash.
As an income investment, the company stands out. Legal is the largest pension manager in the UK. This means the corporation is highly regulated and has to invest for the long term. Management has to make sure investors can trust the business to be around in 50 years when it’s time to claim their pension.
This means the firm has to employ a sustainable dividend policy – that’s great news for income investors.
Unlike other cheap UK shares that have cut their dividends recently, Legal currently supports a dividend yield of nearly 9%. The payout is covered 1.6 times by earnings per share.
And just like Direct Line, Legal also looks cheap after the recent stock market crash. The stock is selling at a forward P/E of 7.3, which is half the market average. When investor sentiment towards the business improves, it is possible the stock could double from current levels.
All in all, as an undervalued income investment, Legal looks as if it could be a great addition to any portfolio of cheap UK shares. The company’s market-beating dividend yield and low valuation suggest that it could produce high total returns.
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.