I’m feeling surprisingly bullish for a foggy November day, and in a mood to buy bargain UK dividend shares.
When I look at some of my favourite FTSE 100 income stocks, many appear to be trading at irresistible prices. At the same time, they offer blockbuster yields.
In the last month I’ve bought the two biggest yielders of all, housebuilder Persimmon and miner Rio Tinto. I don’t intend to stop there. When opportunity comes knocking, it seems rude not to respond.
I’m on the hunt for dividend shares
I recently flagged up Lloyds Banking Group (LSE: LLOY) as a dividend stock I’m ready to buy. The bank trades at just 5.8 times earnings and yields a well-covered 4.65% a year.
Naturally, it comes with risks. The recession could lead to a sharp rise in debt impairments among its small business and retail customers. On the other hand, higher base rates should help Lloyds boost net interest margins.
Given that I plan to hold the stock for decades, short-term issues like these don’t mean that much to me. I’m delighted to have an opportunity to buy this dividend stock at what looks like a tempting valuation to me.
Household goods giant Unilever (LSE: ULVR) is also on my buy list. For years it was expensive, trading at around 25 times earnings while yielding just over 2%. Its recent troubles have produced a much more attractive entry point.
Today, Unilever yields a halfway decent 3.65% and trades at a relatively cheap 17.18 times earnings. Management has a challenge on its hands, as the group has lost its way over the last year or two, but it’s not exactly in mortal peril.
A full-blown Unilever share price recovery could be several years off, but I’ll bide my time while management gets its act together. Once I’ve bought the stock, I can start reinvesting the dividends to build my stake ahead of any recovery.
I’m keen to add another FTSE 100 high yielder to my buy list, ideally one paying higher income than these two.
Huge yields to be had
Insurer Legal & General Group (LSE: LGEN) has long been a favourite of mine. If I’d been sharper, I would have bought the stock during the pensions meltdown that followed ex-Chancellor Kwasi Kwarteng’s disastrous mini-budget. Legal & General shares have rebounded 22% since Jeremy Hunt brought stability.
They’re still down 16% year-to-date and are 6% lower than five years ago. It’s valued at 7.29 times earnings and yields 7.46% a year, covered 1.8 times by earnings. I need to dig a bit deeper than this before shifting it to my buy list, but so far the signs are positive. The L&G share price hasn’t grown much in years. But it’s the income I’m after.
The FTSE 100 has recovered in recent days and is up 7.1% over the last month. Yet all three of these dividend shares still look cheap to me. I expect to buy the set before the year is out. If the FTSE 100 dips, I’ll act sooner rather than later.
