3 cheap UK income shares to buy right now

Which are the best income shares to buy on the UK stock market today? Looking across all of the indexes, I feel spoilt for choice.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Smartly dressed middle-aged black gentleman working at his desk

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When stock markets are in turmoil, calm investors who don’t panic can find some nice long-term buys. The obvious temptation is to look for depressed share prices and buy for growth. But when markets are cheap, I think income shares can be among the best shares to buy.

The beauty lies in the dividend yields. If we buy when share prices are low, dividend yields are higher. And we get the benefit of that higher yield every single year we hold the shares we buy. Right now, I see so many opportunities it’s hard to choose which shares to buy. But I’ll try.

I’m going to pick a company from the FTSE 100, one from the FTSE 250, and an investment trust.

Bank on insurance

The Legal & General (LSE: LGEN) share price has dipped 20% since January’s peak.

I actually think that’s reasonably resilient, with the financial sector hard hit this year. The fall puts the shares on a forward price-to-earnings (P/E) ratio of 7.5. That’s about half the current FTSE 100 average.

And while I expect financial stocks to fall below average, I reckon that’s too cheap. It’s surely because of the uncertainty that insurers face during tough times, and the risk is genuine.

But, more importantly, the forward dividend yield for 2022 stands at nearly 8%. And it rises above 8.5% on 2024 forecasts. These are very uncertain times, and these yields are far from guaranteed. But I rate Legal & General among today’s best FTSE 100 shares for investors to buy.

Houses are safe, right?

The FTSE 250 is awash with fat financial sector dividends. But for diversification, I’m picking housebuilder Bellway (LSE: BWY), whose share price looks like this.

That slide has dropped the P/E down as low as six, and pushed the forecast dividend yield up as high as 6.3%.

Investors are clearly expecting the housing market to take a hit from rising interest rates. And house moves will presumably be put on hold too. Or will they?

For the four months to 5 June, Bellway reported strong sales demand. And if we switch to Persimmon‘s first-half update to 30 June, we see rising forward sales and increasing gross margins.

There is a very real risk that a prolonged economic downturn could hurt our housebuilders. But Bellway’s dividend looks attractive to me for long-term income.

An income hero

Merchants Trust (LSE: MRCH) is an investment trust targeting UK equity income. It’s share price has held up over the past year, but it’s been dipping these past couple of months.

The dividend yield is only a relatively modest 5%. But it has a couple of advantages that I think elevate it above some of its peers. Merchants makes the list of Dividend Heroes put together by the Association of Investment Companies, having raised its dividend every year for 40 years in a row.

The trust also aims to provide long-term capital growth, to add to its income potential.

Should its long run of dividend rises miss a beat, I could see the share price being hit. But, to me, Dividend Hero equals income hero.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Persimmon. 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.

More on Investing Articles

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »