Here, I’m going to highlight two cheap UK value stocks that pay dividends. Given their low valuations and attractive yields, I’d be comfortable buying both of these shares for my portfolio today.

Dirt-cheap value stocks

Let’s start with FTSE 100 company BAE Systems (LSE: BA), which is Europe’s largest defence company. It currently has a forward-looking price-to-earnings (P/E) ratio of 13, well below the median FTSE 100 P/E ratio of 16.

BAE’s full-year 2021 results, published last week, showed that the company is doing pretty well. For the year, sales increased by 5% to £21.3bn. Meanwhile, underlying earnings per share increased by 12% on a constant currency basis to 47.8p.

On the back of these results, the group declared a final dividend of 15.2p per share, taking the total for 2021 to 25.1p per share. That represents a 6% increase on the dividend declared for 2020, and a yield of about 4% at the current share price.

Looking ahead, management was optimistic about the future, saying it expects to continue generating growth.

“Our diverse portfolio, together with our focus on programme execution, cash generation and efficiencies, is helping us to navigate the challenging operating environment, meaning we are well positioned for sustained top line and margin growth in the coming years,” said CEO Charles Woodburn.

This leads me to believe that this value stock could climb from its current level.

A risk here is that defence budgets could be cut, impacting the group’s revenues and profits. However, given the high level of geopolitical tension globally, I think this is unlikely in the near term.

Big dividends on offer

Another value stock I like the look of right now is Schroders (LSE: SDRC). It’s a leading asset manager that operates across the UK, Europe, US, Asia, Middle East and Africa, and manages around £700bn for its clients. Its non-voting shares currently trade at around eight times this year’s forecast earnings. That’s a bargain valuation, to my mind. 

There are several reasons I like Schroders. One is that the group is big on ESG (environmental, social, and governance). Last year, it announced that it had integrated ESG factors into decision-making across all investments the firm manages. This positions the group well for the future. 

Another is that the group has made a move into private assets. I see this is a great decision as I expect demand for alternative investments to be high in the years ahead, due to the fact interest rates are so low.

Additionally, there’s a very nice dividend yield here. At present, the yield is around 6.5%.

Now it’s worth pointing out that the asset management industry is highly competitive. Right now, Schroders is facing intense competition from the likes of iShares, Vanguard, and Fidelity. This adds risk. A stock market meltdown is another risk to consider. This could impact the group’s revenues.

With the stock currently trading at such a low valuation however, I think the overall risk/reward proposition here is attractive.

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Here are my two favourite income stocks I would acquire for my portfolio right now. 

Dividend shares to buy for growth

The first company on my list is wealth management group Schroders (LSE: SDRC). This is one of the City’s most storied and established wealth managers. And now the organisation is trying to take on the world. 

The FTSE 100 corporation is trying to expand across international markets with a combination of acquisitions and organic growth. The company’s well-known brand and its strong balance sheet are both helping to support this strategy. 

Assets under management have expanded from around £300bn in 2016 to more than £717bn today. I think this growth is the strongest indicator of the company’s expansion potential. 

Unfortunately, there is no guarantee this group will continue. Competition for client assets is incredibly competitive in the wealth management sector. Additional regulations could also hit the company’s profit margins. And as assets managed by the enterprise have expanded, so have management fees.

But overall earnings per share have risen from 179p in 2016 to 226p today. And as income has expanded, so has the firm’s dividend. The per share payout has grown at around 7% per annum since 2016. At the time of writing, the stock supports a dividend yield of 5.5%. 

As the business expands, I think the payout will grow further. Considering this potential, I would buy the FTSE 100 company for my portfolio. 

FTSE 100 champion

The second blue-chip dividend stock I would buy is Segro (LSE: SGRO). Some investors might avoid this company because, at first glance, it does not look as if it is a dividend champion. Indeed, at the time of writing, the shares support a dividend yield of 1.9%. 

However, what I am interested in is the firm’s growth potential. Segro owns and develops warehouse facilities, which retailers and fulfilment companies lease. The market for these assets is currently exploding as online retail grabs an ever-larger share of the overall retail market. 

As one of the largest operators in the sector in the UK, the enterprise has the scale and resources to capitalise on this market growth. But it is not the only business chasing this market. Money is flooding into constructing warehouse facilities across the country. If this leads to a situation where the market is oversupplied, Segro’s outlook could begin to deteriorate. This is the most considerable risk to the company’s growth. 

I would buy the FTSE 100 stock for my portfolio today despite this risk. As its portfolio has grown, management has increased the dividend rapidly. It has risen from 13p in 2016 to 20p today. Although past performance should never be used as a guide to future potential, considering the company’s growth potential, I believe it will remain a dividend growth champion. 

The post My top 2 FTSE 100 dividend shares to buy today appeared first on The Motley Fool UK.

The FTSE 100 isn’t really a UK index. More than 70% of its profits are earned outside of the country. This can be both a benefit and disadvantage for investors.

On the one hand, it’s pretty easy to build international diversification by investing in these blue-chip stocks. On the other hand, if investors want exposure to the UK economy, the FTSE 100 index isn’t really the best place to look. The FTSE 250‘s a better gauge of British business activity. 

Still, there are plenty of companies in the index that have both a UK and international presence. It’s these I’d focus on buying for my portfolio. 

Blue-chip shares to buy now

The first group on my list is the UK fashion retailer Next (LSE: NXT). At the beginning of the pandemic, this business shut all of its stores almost overnight. When service resumed, the company was still so busy it had to limit orders. 

That’s because its technology and fulfilment investments over the past five years have paid off over the past 12 months. Online sales have boomed as consumers’ options were limited. And I think the FTSE 100 company is now primed to take advantage of the UK economic recovery. 

According to its latest trading update, full-price sales in the 11 weeks to 17 July were up 18.6% versus 2019 levels. It now expects to earn a profit of around £750m for the financial year, which is significantly above initial projections. 

As Next continues to grow, I think this is one of the best shares to buy now. That’s why I’d buy the blue-chip business for my portfolio. Some risks it may face as we advance and include rising costs and a slowdown in consumer spending. 

FTSE 100 growth champion

Another company I’d buy is Rightmove (LSE: RMV). I think this is one of the country’s best technology firms. It owns the rightmove.com property portal, which is one of the most visited websites in the UK. 

Even though the property market has boomed over the past 12 months, Rightmove has still suffered disruption. As economic activity returns to normal levels, I reckon sales and earnings at the enterprise will stabilise. This predictability should allow management more scope to invest for growth and return capital to investors. 

The UK property market’s structurally undersupplied, and it doesn’t look as if that’ll change anytime soon. I think this will remain a tailwind for the enterprise for many years to come. That’s why I’d buy the FTSE 100 firm and rate it as one of the best shares to buy now.

Some challenges it may face in the future include a property market slowdown and competition from newer startups. 

International diversification

Schroders (LSE: SDRC) is one of the UK’s largest and most storied asset managers. It looks after more than £700bn of assets for clients worldwide, and this total is expanding.

According to the company’s half-year results, assets under management increased 6% during the first half of the year. 

The company’s main business is located in the UK, but it also has a presence in the US and Asia. As the global economy picks up from the pandemic, I think the demand for the group’s services will grow in all of these markets. With its global footprint and reputation, Schroders should be able to capitalise on this growth. 

The group also benefits from economies of scale, thanks to its size. Demand for higher-margin products helped the company report a 37% increase in profit before tax for the first half.

With further growth on the horizon, I think this is one of the best stocks to buy now for my FTSE 100 portfolio. 

Some risks it could face include competition and regulations, which could impact overall profitability. 

FTSE 100 international exposure

Flutter Entertainment (LSE: FLTR) has grown into one of the world’s premier gambling companies. Using experience gained in its home UK and Ireland markets, the enterprise has been diversifying into the US.

It’s already the number-one online sports betting operator in this market, and management believes there’s the potential for substantial growth in the years ahead. 

As a gambling company, Flutter might not be suitable for all investors. There will always be the threat of additional regulation for the sector, which could impact profitability. In the case of the US, authorities could decide to outlaw online betting again, eliminating the group’s growth story. 

Despite this risk, I’d buy the FTSE 100 company considering its growth track record and potential. Revenues jumped 99% in the first half of 2021. While past performance should never be used as a guide to future potential, this number suggests Flutter’s growth story is only just getting started. 

Best industrial share to buy

The final FTSE 100 company I’d buy is the industrial group Johnson Matthey (LSE: JMAT). This is another business with a UK and international footprint. The corporation manufactures chemicals and sustainable technologies for clients around the world. As you’d expect, its fortunes are tied to economic cycles as customers tend to place more orders in periods of economic growth. 

Last year was one of disruption for the group, but it’s experiencing a recovery in 2021. In its latest trading update, Johnson Matthey’s management noted that due to the strength it’s seeing in its end markets “we now expect at least mid teens growth in underlying operating performance.“

This suggests the enterprise will report strong growth this year as it capitalises on the economic rebound. This is why I think it’s one of the best shares to buy today for the UK recovery. 

The enterprise has warned that higher metals prices or other costs could impact its growth for the year, so this is a risk I’ll be keeping an eye on. 

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It looks as if it is only becoming more challenging for businesses to navigate change. Since 2000 the average life of UK companies has fallen from nearly 11 years to 8.5.

Still, while it is impossible to predict what the future holds for any business, I think some firms are better positioned for long-term success than others. By sticking with these organisations, I think I can swing the odds of finding a top-quality buy-and-hold stock in my favour.

There is one company that looks to me to have all the qualities I am looking for.

FTSE 100 buy-and-hold buy

The wealth management market is highly fragmented, and it is only becoming more competitive. In this market, winning companies have always had two desirable qualities, size and reputation.

Investors will only give their money to someone they trust, which is why reputation is essential. At the same time, keeping up-to-date with changing regulations and producing something investors want to pay for cost money. Smaller managers may struggle to meet these costs. This is where larger firms have the edge.

Considering all of the above, the one FTSE 100 stock I would buy to hold until 2030 is Schroders (LSE: SDRC).

This is one of the UK’s more storied asset managers. It is also one of the largest. According to the company’s figures, it manages £700bn for clients around the world. That is nearly $1trn, putting it in the ranks of the world’s top asset managers. In comparison, Hargreaves Lansdown has around £120bn of assets under administration.

As the global economy recovers and the ranks of the worlds richest expand, I reckon the demand for wealth management services will only grow. This could be great news for Schroders. Its size and reputation may only continue to attract assets.

Those are the reasons why I would buy and hold the stock to 2030.

As well as the above growth tailwinds, shares in the asset manager offer a dividend yield of 3%. Asset growth should help the company’s bottom line, which could allow the group to hike its payout to investors.

Risks and challenges

Schroders has some significant growth tailwinds behind it, but the FTSE 100 organisation does have challenges. It is one of the world’s largest wealth managers, but it is not the largest. It faces competition from larger US groups, all of which are competing for business in the same pool of customers. The firm has to stay on its toes, or it could lose market share to bigger players.

At the same time, new regulations could hurt the company’s bottom line. This is something no financial enterprise can avoid.

Despite these risks and challenges, I would buy Schroders for my portfolio, considering its growth potential. A decade of expansion could be on the cards as the firm expands its assets under management.

The post One FTSE 100 stock I’d buy to hold until 2030 appeared first on The Motley Fool UK.

Northern utility

United Utilities Group (LSE: UU) provides water services to the North West of England. Headquartered in Warrington, the firm has a solid track record as a publicly listed firm for several decades. As utilities are not classified as a growth sector, UU uses a dividend as a tool to keep investors happy. At present, the dividend yield sits at 4.76%. 

This appears to be a sustainable dividend, for investors to pick up passive income for the future. In the latest trading update last month, the business said second-half revenues are likely to be down around 5% from the first half of the year. An increase in household consumption is slightly outweighed by reduced business consumption. This is logical, but it’s evident that the business is not anticipating a large fall in revenue or profit as a result of Covid-19.

As a result, I’d feel comfortable buying the stock for passive income into next year and beyond. With a yield of almost 5%, it’s high enough to give good returns, but not unsustainably high. Some stocks with a dividend yield above 10% could be under pressure of a dividend cut. For UU, around 5% is not a cause of concern for shareholders, I feel.

Money managers

Schroders (LSE: SDRC) is a large asset management company. It has an extended presence around the globe, with reported assets under management in 2019 of over £500bn. The share price was down as much as 36% earlier this year. It has rallied somewhat, but is still down on the year. This is one large factor that has bumped the dividend yield up to 6.2%.

The dividend yield is nowhere near as high as similar firms in the industry such as M&G or Standard Life Aberdeen. When such yields start to creep to 10% or higher it usually starts sounding warning bells in my mind. So I’d be happy in picking up passive income via the Schroders dividend as a safer play.

Half-year profits did dip by 10% as investors rushed out of funds, but the AUM figure has been recovering in recent months. Given that Schroders services various different segments from retail to institutional clients, the risk is well spread. Again, I feel that the dividend should be supported into 2021 and beyond unless we see another market crash similar to March.

Passive income via an ISA

The two above stocks are good examples of how sustainable passive income can be found right now in the FTSE 100. I’d also make sure that I buy the stocks within an ISA to enable me to benefit from receiving the dividends gross of tax. That way, not only are we beating inflation, but also generating a positive cash flow!

The post 2 FTSE 100 stocks I’d buy for my ISA in November for passive income appeared first on The Motley Fool UK.

However, research shows that buying stocks in times of uncertainty, when other investors are selling, can lead to strong total returns in the long run. 

With that in mind, here are three UK shares on sale that I’d buy today after the stock market crash. 

UK shares to buy

Advertising giant WPP (LSE: WPP) has outperformed expectations so far this year.  The company’s latest trading update reported that the group saw sales of £2.4bn in the three months to September. That was a 5.5% year-on-year decline, but it was much better than analysts were expecting. 

Despite this performance, the stock’s trading 45% below the level at which it began the year. I don’t think the company’s underlying performance justifies this decline.

As such, I think investors may benefit from buying the shares at current levels. In my view, even a slight improvement in the group’s fortunes could lead to a large jump in investor sentiment, which may send the share price soaring. 

And investors will be paid to wait. The company resumed dividend payments in August and the stock currently supports a yield of 4.7%. 

Stock market crash bargain 

Schroders (LSE: SDRC) is projected to report a decline in earnings this year. The asset manager could see net income fall 11%, according to the City. However, profits are projected to rebound in 2022. Analysts expect the company to recover from its Covid-19 slump within two years. 

This could help the stock stage a positive performance in the next few years. Schroders hasn’t been as badly hit by the pandemic as some of its peers. Therefore, the firm is relatively well-positioned to stage a recovery in the months and years ahead. 

Management is also looking for deals to boost growth going forward. Thanks to these qualities, I’m highly optimistic about the outlook for the stock. A dividend yield of 6.3%, rising to nearly 6.4% next year, is also attractive, in my view. That’s why I’m considering buying the asset manager as part of a basket of UK shares. 

Global growth

The last company I’d consider buying after the recent stock market crash is gaming technology business Playtech (LSE: PTEC). 

I think this company flies under the radar of most investors, but it shouldn’t. Playtech provides the software for gambling companies to operate their online operations. This is a highly specialised, but extremely lucrative, market. 

In recent years, the company has been focusing on the markets in Europe and Asia. However, it’s now planning to expand in the United States, where an explosion in sports betting activity has started a sort of arms race among gambling operations. 

Analysts reckon this expansion could help the group report earnings growth of more than 50% next year. If the company manages to hit this target, it looks fantastically cheap at current levels. 

As such, I reckon an investor could benefit from buying this business as a long-term growth opportunity. 

The post Stock market crash: 3 UK shares on sale I’d buy today appeared first on The Motley Fool UK.

And when July’s statistics come out, later in August at the time of writing, I think we’ll see much the same thing, albeit perhaps a little muted by seasonal expenditure on holidays.
 
It’s not difficult to see the thinking. Yes, some consumers are undoubtedly feeling financial pain during the pandemic. But many others aren’t.
 
And with fewer opportunities to spend money, spare cash is accumulating. In times of economic uncertainty, paying off debt – and putting money aside for a rainy day – makes excellent sense.

No more ‘urge to splurge’

Saving becomes the new normal

Smart move

Paying off debt is sensible: do that first. Bolstering your bank balance is also sensible: cash savings are a handy safety net. But with interest rates on the floor, savers must recognise that the real level of return is either close to zero, or negative.
 
In early January, before the pandemic panic of late February and early March, the Footsie was close to 7700. Since late May, it’s been bumping along at around 6100 – a 20% discount, in other words.
 
Granted, plenty of businesses have taken a pandemic pounding, taking their share prices to even steeper discounts. But many others are recovering nicely, with dividends being restored and confidence returning.
 
With surplus cash, a few judicious stock market investments is looking more and more like a smart move.
 
What are you waiting for? For as I’ve remarked before: if you don’t buy shares when they’re cheap, when do you buy them?

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One exception is top fund manager Nick Train, who runs the Lindsell Train UK Equity Fund. Train’s funds own around 10% of this business. Indeed, Lindsell Train is the company’s second-largest shareholder, after its founding family, who control around 45% of the voting stock.

Who is it?

The company in question is asset management group Schroders (LSE: SDR). This City stalwart was founded more than 200 years ago and has become known for taking a long-term and responsible approach to investment. This isn’t a business that chases quarterly earnings and short-term gains.

This approach has worked very well for long-term holders of this FTSE 100 income stock. Schroders’ dividend has not been cut for at least 30 years, which was as far back as I could research. That unbroken record includes the 2008 financial crisis and this year’s market crash.

If you’re interested, Schroders’ share price has risen by nearly 120% since 2000.

What’s so good about this business?

It’s surprisingly rare to find businesses that can deliver consistent profitability and dividends over several decades. Schroders has achieved this trick. Looking back over the last five years, the group’s operating profit margin has averaged 26% and returns on equity have averaged nearly 16%. Those are impressive figures, in my view.

As an asset manager, Schroders makes money from fees rather than interest rates. In today’s world of ultra-low interest rates, I think this makes the firm a much better choice than the big FTSE 100 banks for income investors.

Looking ahead, the company is continuing to focus on its core investment management business while looking for related new opportunities. One recent example is a wealth management joint venture with Lloyds Banking Group, named Schroders Personal Wealth.

It’s too soon to say how successful this venture will be, but I think it should help Schroders to win new business without requiring significant investment.

How to buy this FTSE 100 income stock

There’s one thing I think you need to know before you buy this share. Unusually, Schroders has two classes of stock. The main FTSE 100 stock has the ticker code SDR. This carries voting rights but has a higher share price than the Schroders (LSE: SDRC) shares, which don’t have voting rights.

Holders of both classes of share receive the same dividend. At the time of writing, this means that the SDR stock offers a yield of 4.1%, while the SDRC shares yield around 5.9%.

In my view, voting rights are irrelevant here. As a small private shareholder, you’ll never have any influence, given the size of the family’s shareholding. I’d always buy the SDRC shares to benefit from the extra yield.

I think Schroders looks good value at current levels, so I’d rate the shares as a long-term buy.

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The FTSE 100 is currently 25% below its all-time high of two years ago. However, it’s always recovered and gone on to new highs. As such, I reckon October could be a great time for investors to start building a diverse portfolio of Footsie stocks.

A FTSE 100 defence stock

Few UK companies can boast a pipeline of work as big as BAE Systems (LSE: BA). The defence giant’s order book stood at £46.1bn at 30 June. This is testament to the group’s status as a trusted partner of the UK and US defence departments. Its reach also extends to other allied governments.

BAE reported a robust performance in the first half of the year. It expects full-year sales to increase by a low-single-digit percentage compared to last year. This will be helped by two acquisitions, and by increased volumes in the F-35 aircraft programme, combat vehicles and electronic defence offsetting lower commercial business.

At 493.9p, BAE’s shares are trading at a 26% discount to their 2020 pre-market-crash high. Valued at 11.6 times trailing 12-month earnings, and carrying a running dividend yield of 4.7%, I think this FTSE 100 stock is set to deliver an impressive return in the long run.

A family-controlled blue-chip business

I reckon the non-voting shares of asset manager Schroders (LSE: SDRC) are a better buy for small private investors than the company’s voting shares (SDR). Both classes of share are trading at discounts to their pre-crash levels (26% and 20% respectively). However, the non-voting shares are also at a 30% discount to the voting shares.

This is a wider discount than usual. It means the SDRC shares, at 1,938p, offer a significantly higher dividend yield than the SDR shares, at 2,753p. Currently, 5.9% versus 4.1%. As such, the non-voting shares are better for both income seekers and investors looking to compound their capital by reinvesting dividends.

The company was founded in 1804, and the unusual — but not unique — voting/non-voting share structure helps the descendents of the founders maintain a controlling interest. Family firms like this run the business on a conservative, multi-generational view. I think this aligns nicely with the aims of long-term private investors.

Another quality FTSE 100 stock

Associated British Foods (LSE: ABF) owns budget fashion chain Primark in addition to a number of food businesses. It doesn’t have two share classes, but is another FTSE 100 firm still controlled by descendents of the founders.

The shuttering of Primark stores under lockdowns earlier this year wasn’t good news for the group. However, its food businesses performed well. Furthermore, it said recently that both food and Primark exceeded management’s expectations for the 13 weeks to 12 September (the final quarter of the group’s financial year).

At 1,874.5p, the shares are trading at a 31% discount to their pre-crash level. This is another FTSE 100 stock where I believe there’s great value for long-term investors looking to build a blue-chip starter portfolio.

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Of course, dividends aren’t guaranteed, as this year’s events have shown. But many companies have maintained their payouts or have already restarted dividend payments. Today I want to look at three FTSE 100 dividend stocks I’d buy for a regular income.

Long-term growth from healthcare

There aren’t many certainties in the world. But I think we can be sure that demand for modern healthcare will continue to grow for the foreseeable future. My main healthcare investment is GlaxoSmithKline (LSE: GSK), the FTSE 100 pharmaceutical and consumer health group.

Glaxo is a popular dividend stock, but in recent years performance has been held back by the declining sales of former blockbusters that have lost patent protection. One big example of this is asthma medicine Advair. More recently, vaccine sales have fallen as the Covid-19 pandemic has restricted non-emergency healthcare activity.

However, I expect the headwinds from the pandemic will soon start to reverse. Looking further ahead, GSK has a number of new products that should support medium-term growth. I also expect the planned separation of the group’s consumer business (which owns brands such as Sensodyne) to improve performance.

At current levels, Glaxo stock offers a dividend yield of 5.2%. I see this as a good level to buy for long-term investors.

A family-focused dividend stock

FTSE 100 asset manager Schroders (LSE: SDR) (LSE: SDRC) — which manages more than $500bn of investor assets — might not seem like a family firm. But Schroders’ founding family still has a controlling stake in this 216-year old firm.

I think this family ownership is reflected in the conservative, long-term strategy employed by the group.

For income investors, investing in family firms can make sense. The firm’s controlling shareholders won’t want to lose what might be their main source of income. In my experience, dividends paid by family firms are often more affordable and sustainable than at comparable firms with no long-term ownership.

I see Schroders as one of the best dividend stocks in the FTSE 100. The shareholder payout hasn’t been cut for more than 30 years. And if you buy the non-voting Schroders (LSE: SDRC) class of shares today, you can look forward to a 5.4% dividend yield.

A sinful 8% dividend yield

Tobacco stocks divide opinion like few others. But the reality is that in financial terms, selling cigarettes is still a very large and profitable business. As I write, FTSE 100 stock British American Tobacco (LSE: BATS) offers a well-supported dividend yield of 8.5%.

There are very few other companies that can offer such strong cash flows for shareholder returns. But tobacco stocks are out of favour at the moment. That’s left BATS trading on a modest valuation of around eight times earnings.

Owning this dividend stock isn’t without risk. Regulations on tobacco sales could change in the future. The decline in smoking rates could accelerate. And BATS’ large debt pile could cause problems for the firm.

However, I suspect that industry leaders like this one will be able to manage these problems and continue to reward shareholders. I rate the stock as a dividend buy.

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