A friend left me a voicemail message yesterday. He told me that he wanted to invest several hundred pounds a month into cheap stocks, and asked which UK shares I’d buy now to start a new portfolio. Apparently, he was inspired by my article yesterday about two cheap FTSE 100 shares. I can’t give out individual investment advice. That said, here are three Footsie shares that I don’t own, but would happily put £250 into each today.
#1. BHP for dividends
One powerful stock market saying is “Time in the market beats timing the market.” For me, investing is a long game in which I capture as much of Mr Market’s future profits as I can. Often, I do this by collecting (and often reinvesting) dividends. Dividends are cash distributions paid to shareholders, typically half-yearly or quarterly. Though dividends are not guaranteed, I’m drawn to companies offering decent payouts.
For its market-beating dividends, the first of my cheap stocks is miner BHP (LSE: BHP). At the current share price of 1,981.8p, BHP is a £106.3bn super-heavyweight. Yet its shares trade on a modest rating of 12.3 times earnings and an earnings yield of 8.2%. BHP’s huge cash flows allow it to make bumper payouts: its current dividend yield is 10.7% a year. Although mining stocks are notoriously volatile, I’d ride out future turbulence by reinvesting my dividends into yet more BHP shares.
#2. IAG for recovery
The second of my cheap stocks is International Consolidated Airlines Group (LSE: IAG). IAG operates eight airline brands, including British Airways (UK), Iberia (Spain), and Aer Lingus (Ireland). Due to Covid-19, airline stocks have taken a savage beating over the past 20 months. At its 2020 peak on 17 January last year, the IAG share price hit an intra-day high of 684p. During the global pandemic, IAG shares collapsed to a lifetime low of 86.54p on 25 September 2020. But as vaccination programmes rolled out, they hit a 2021 intra-day high of 222.1p on 16 March 2021. Alas, the shares have since plunged back to earth. As I write, they trade at 141.98p, down more than a third (36.1%) over the past six months. When we do get the coronavirus under control, then I expect IAG to recover and rebound. But if Covid-19 lingers, it could be a bumpy ride!
[fool_stock_chart ticker=LSE:IAG]#3. Lloyds for growth
The third of my cheap stocks is seen on most high streets: Lloyds Banking Group (LSE: LLOY). Lloyds has 13 leading financial brands, including Lloyds Bank, Halifax, Bank of Scotland, Birmingham Midshires, and Scottish Widows. But being Britain’s leading lender during a pandemic is hardly ideal. At its 2020 peak, just before the coronavirus changed our world, LLOY hit an intra-day high of 63.84p. By 22 September 2020, it had crashed to a low of 23.58p. As I write, Lloyds trades at 44.83p, valuing the Black Horse bank at £31.8bn. Its shares trade on a lowly rating of 6.8 times earnings and an earnings yield of 14.6%. Lloyds cancelled its dividend in 2020, but has since reinstated it. Hence, the current dividend yield of 2.8% a year has scope for growth. If Covid-19 abates, then I expect Lloyds’ earnings to grow. But any further viral setbacks might hit the shares for six…
