The Motley Fool

Cheap UK shares with high dividend yields: 2 FTSE 100 stocks I’d buy today

Image source: Getty Images.

Who doesn’t love a good stock market rally? 

Seeing our net worth rise steadily without so much as lifting a finger is a great feeling. But there’s a downside too. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

As the stock markets rise, cheap UK shares are less easy to find than they were during the stock market crash. And if dividends become scarce at such times too, like they did last year, it’s a double-whammy. 

The good news, however, is this. If we look hard enough, there are still some gems among Footsie constituent companies that can still be called cheap UK shares. Some even offer high dividend yields. 

Here are two of them:

#1. Legal and General: sustainable income gains

The FTSE 100 insurer has a lot going for it. For one, the price-to-earnings (P/E) ratio for Legal & General (LSE: LGEN) is 13 times. I like using the ratio to see how a share’s price compares to other FTSE 100 shares. As per this measure, LGEN is relatively low-priced. Of course, it’s only a bargain if it’s worth buying.

To figure out if there’s any steam in the share price to drive it upward, I like to compare it to its pre-pandemic levels. While LGEN has gained during the stock market rally, it’s still below where it was last year at this time. 

LGEN’s financials are also robust. It expects its operating profit for 2020 to be in line with last year’s, which is far more than can be said for many other FTSE 100 companies. 

The company also has a pretty meaty dividend yield of almost 7%. And going by its financials, I don’t think there’s much danger of the dividend being cut, either.

The only drawback to the LGEN stock I can see is its share price trend. Its share price hasn’t gone anywhere in the past five years. So if I buy this stock for the next few years, I will bear this risk in mind, even if the price rises in the short term in the stock market rally

#2. M&G Investments: high dividend yield

Investment manager M&G (LSE: MNG) is another FTSE 100 stock I’d consider. It was hived off into a separate entity from the insurer Prudential recently, and faced the Covid-19 challenge soon after. 

Its operating profits for the first half of 2020 were half those in 2019 and assets under management declined. However, a recent reduction in its fees is likely to make M&G more competitive. 

Moreover, according to City analysts’ expectations compiled by the Financial Times, there’s almost no downside expected for the stock from its current share price. I think it’s worth underlining that forecasts are subject to change based on evolving company and macro circumstances. Even so, this is a rare share price forecast. 

Investors don’t seem to have taken to the stock yet, though. It has a small earnings ratio of 4.5 times. Its weak price trend has clearly bumped up its dividend yield to a huge 9.6%. 

I don’t think the stock is without risks, notable among them being performance risk, but the income generated is something to be considered. I’d consider buying it. 

One stock for a post-Covid world...

Covid-19 is ripping the investment world in two…

Some companies have seen exploding cash-flows, soaring valuations and record results…

…Others are scrimping and suffering.

Entire industries look to be going extinct.

Such world-changing events may only happen once in a lifetime.

And it seems there’s no middle ground.

Financially, you’ll want to learn how to get positioned on the winning side.

That’s why our expert analysts have put together this special report.

If the pandemic has completely changed our lives forever, then they believe that this stock, hidden inside the tech-heavy NASDAQ, could be set for monstrous gains...

Click here to claim your copy now — and we’ll tell you the name of this US stock… free of charge!

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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.