Christmas is coming and if I have money left over from my shopping, I’d love to spend it on more bargain dividend stocks for my portfolio.
Dividend stocks aren’t just for Christmas, of course. They’re for life. Any shares I buy today I’d hope to hold to retirement and beyond.
I’m on the hunt for dividend stocks
I’ve enjoyed some success from buying beaten-down FTSE 100 stocks lately, and I can’t get much more beaten than BT Group (LSE: BT.A). Its shares are down 35% over one year, and almost 60% over five years.
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Falling earnings and rising debt never make a good combination, and BT has suffered both. It also has a £4bn shortfall on its pension scheme.
Management is looking to slash £500m costs as rising energy bills squeeze margins, with plans to merge its Global Services and Enterprise units. It faces a sea of troubles, yet I would still buy it. That’s because I’m a long-term investor, and can afford to look past today’s challenges. BT shares just look too cheap to ignore, trading at 5.5 times earnings. The dividend yield is a thumping 6.8%, covered 2.8 times by revenues.
When investor sentiment turns, positive, it must at some point next year, BT could rebound. I’d like to be holding its stock when it does.
I’m applying the same philosophy to my second FTSE 100 dividend stock, Britain’s biggest fund manager Schroders (LSE: SDR). Its share price has been knocked back by this year’s volatility, crashing 25%. Measured over five years, Schroders shares are down 22% so it’s not a one-off.
As markets fell and investors backed off, assets under management (AUM) dipped 2.7% to £752.5bn in the quarter to 30 September. I don’t think that’s too bad, given the turbulence. I’ll be watching closely for the next set of numbers, as the current stock market rally should boost AUM for the quarter to 31 December.
FTSE gives me income
Yet the quarter also saw the gilt market meltdown, which sent assets in its Solutions division crashing more than £20bn to £205bn. Despite the uncertainties, Schroders’ shares are up 10% in a month. Next year could be even better and the stock looks good value at 9.15 times earnings while yielding 5.4%, covered twice.
While I’m in the mood for risk, I’d also consider the UK’s second-biggest grocery chain, Sainsbury’s (LSE: SBRY). Its shares have also suffered a meltdown, falling 20% in the last year, while trading 12% lower over five years.
Again, it’s been climbing in recent months, as investors believe the sell-off has been overdone and fancy a bargain. Sainsbury’s is certainly that, I feel, valued at just 8.8 times earnings.
There are signs that grocery inflation is easing although I’m not putting too much faith in that, as Kantar figures show, it was still a terrifying 14.6% in November. Sainsbury’s can’t easily push those costs onto cash-strapped customers.
Throw in the threat from Aldi and Lidl and things look even tougher. Yet I’d still buy Sainsbury’s for its 5.84% yield, covered 1.9 times by earnings. I’ll reinvest that to buy more stock and with luck, one day shoppers will feel richer and the Sainsbury’s share price will recover. As I said, I can bide my time.
