In late 2021, I wrote many articles warning that global asset prices were extreme. I repeatedly predicted that we were in an ‘everything bubble’ doomed to collapse. Alas, my forecasts proved accurate across the globe — except in the UK, where the FTSE 100 index held firm.
The FTSE 100 was my favourite in 2022
Over the past 12 months, the US S&P 500 index has lost 18.9% of its value, having rebounded from its 13 October low of 3,491.58 points. Meanwhile, the tech-heavy Nasdaq Composite index has crashed by 31.5% in 12 months, also bouncing back since its 13 October bottom.
However, as I write, the UK’s FTSE 100 index stands at 7,649.95 points, up 1.8% over the past year. Adding in cash dividends takes this return to nearly 6%. In other words, the Footsie has been a safe port in global market storms. But why?
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Footsie stocks were very cheap in 2021-22
For years, the FTSE 100’s big problem was that it was packed with ‘old economy’ stocks, including banks, miners and oil companies. During the 2009 to 2021 investing boom, global investors ignored or overlooked these old-school stocks and instead bought go-go growth stocks, such as US tech firms.
As a result of this strong secular trend, the valuation gap between value shares and growth stocks stretched to its widest level in over 200 years. This incredible divergence caught my eye and finally prompted me to start buying cheap UK shares. Hence, from mid-2022 onwards my wife and I bought into several quality companies at bargain prices.
Five Footsie shares we bought for big dividends
In total, we bought 10 new UK shares for our family portfolio from late June onwards. For example, we bought the following five FTSE 100 shares for their high earnings yields and market-beating dividend yields. And sorry for all the figures, but I’m a lifelong number geek!
| Company | Aviva | Barclays | L&G | Lloyds | Rio Tinto |
| Business | Insurer | Bank | Insurer | Bank | Miner |
| Share price | 452.8p | 173.6p | 258.5p | 48.34p | 5,927p |
| 52-week high | 606.58p | 219.6p | 309.9p | 56p | 6,343p |
| 52-week low | 341.92p | 132.06p | 191.37p | 38.1p | 4,424.5p |
| 12-month change | -19.1% | -12.3% | -14.5% | -4.6% | +17.7% |
| Market value | £12.7bn | £27.6bn | £15.4bn | £32.5bn | £98.2bn |
| Price-to-earnings ratio | 9.3 | 5.7 | 7.6 | 8.0 | 6.6 |
| Earnings yield | 10.8% | 17.7% | 13.1% | 12.5% | 15.2% |
| Dividend yield | 6.6% | 3.6% | 9.2% | 4.4% | 8.9% |
| Dividend cover | 1.6 | 4.9 | 1.4 | 2.8 | 1.7 |
This isn’t a complete portfolio
I must point out that this isn’t a properly balanced portfolio. It includes two banks and two asset managers, plus a global mega-miner. This is just a snapshot of a part of our portfolio — and one that’s highly concentrated on financial stocks.
Having bought these five shares, we’re keen to hold them for the long term. After all, their average earnings yield is 13.9%, which is almost twice that of the wider FTSE 100. What’s more, their average dividend yield is around 6.5% a year. That’s almost 2.5 percentage points higher than the Footsie’s yearly cash yield of about 4%.
To sum up, I think these companies have the potential to produce decent dividends for my family for many years to come. Of course, I could be wrong and I also expect their share prices to be volatile. But that’s life, agreed?
