This week has been another game of two halves for the FTSE 100 index. As I write, the Footsie hovers around 6,883.74 points, down 0.8% so far today. The UK’s blue-chip market index started off the week strongly, peaked on Tuesday afternoon and then fell back to its current level.
The FTSE 100’s highs and lows in 2022
At first, the FTSE 100 got off to a solid start in 2022. At its 52-week intra-day high, the index hit 7,672.40 on 10 February. But then Russia invaded Ukraine a fortnight later, causing global stock markets to plunge.
At its 2022 bottom, the Footsie plunged as low as 6,707.62 just last week (on 13 October). It has since bounced back over 2.6%, but is still far closer to this low than February’s high. Indeed, with the UK economy facing powerful headwinds (soaring inflation, skyrocketing energy and fuel bills, and rising interest rates), the FTSE 100 might find lower lows before this year is out.
The Footsie looks cheap to me today
Alas, the FTSE 100 has been a poor performer for most of the 2000s. At its 1999 peak, it hit 6,950.60 on 30 December 1999. Today, it lies around 1% below this level, having generated no capital gain in nearly 23 years. Thus, the only positive return from the Footsie since 1999 has come from its regular cash dividends. Yikes.
Nevertheless, I can’t help thinking that the FTSE 100 looks cheap today. It trades on a price-to-earnings (PE) ratio below 13.7 and a corresponding earnings yield of almost 7.5%. What’s more, its dividend yield of 4.2% a year is one of the highest among major stock indices. Also, this cash yield is covered almost 1.8 times by earnings, so it looks reasonably solid to me.
We’re buying cheap shares again
During June and July, my wife and I built a new mini-portfolio of 10 cheap shares, six of which came from the FTSE 100. As value investors, we chose these shares for their low price-to-earnings (P/E) ratios and high dividend yields. Returns from these cheap stocks have been very mixed — but their dividend income has started rolling in, which is our primary concern.
One cheap FTSE 100 share we’ve bought several times this year is big bank Barclays (LSE: BARC). The Blue Eagle bank’s stock has been up and down like a yoyo this year. From its 2022 high of 219.6p on 14 January, it crashed as low as 132.06p just nine days ago (on 12 October). As I write, Barclays stock trades at 142.6p, slightly below my summer buying price.
However, I still view Barclays as a bargain-basement share today. At the current price, it trades on under 4.9 times earnings, producing a mighty earnings yield of 20.6%. Furthermore, while its yearly dividend yield of 4.4% only slightly exceeds the FTSE 100’s cash yield, it’s covered a whopping 4.7 times by earnings.
In addition, though things look pretty rough for the British economy, Barclays has billions of pounds of spare capital to mop up loan losses and other negatives. Also, it has a large US investment-banking operation that often thrives during choppy financial markets. I think Barclays will be a good bet over the coming decade, which is why I plan to buy more shares soon!
