Market volatility may deter investors from putting their cash into the stock market. But not me. My plan is to buy cheap shares and hold them for decades to come. I’m also looking to make some extra income on the side. As such, these two shares have caught my eye.
FTSE 100 stalwart
Where else to start but Legal & General (LSE: LGEN). The stock has risen over 10% in the last month. Despite this, its share price is down 12.8% in the last year.
I’m already a shareowner. But I’m incredibly tempted to increase my position. And what’s doing it most for me is the dividend yield.
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The stock yields a whopping 8.6%. In the FTSE 100, only four other companies offer a higher payout. Its also made strong efforts to improve shareholder returns. Next year marks the end of its cumulative dividend plan. By then, it expects to have paid out up to £5.5bn.
On top of that, with a price-to-earnings (P/E) ratio of just six, it looks cheap. This is around half the Footsie average.
One of the main factors driving its decline in the last year has been a flagging global economy. And while it’s not alone in its struggles, it’s still a concern. Assets under management fell by 10% according to its latest release. There’s always the threat that investors could continue to pull their money. On top of that, CEO Nigel Wilson stepping down this year and the uncertainty this provides may also be cause for concern.
However, this is a short-term worry. And the firm has already lined up a replacement. It may continue to suffer in the months ahead. But I’m buying for the long haul. The extra income is a plus too.
Financial powerhouse
Carrying on the financial theme, I’m watching Barclays (LSE: BARC) like a hawk. The last few years have been disappointing for the bank. Over the last five years, its shares are down 13.8%. In the last 12 months, they’ve been pulled back 12%. Regardless, at 140p, I’m bullish on Barclays.
To start, the stock yields 5.5%. What’s more, that’s covered nearly five times by earnings. Its payout is forecast to top 6% next year. And even then, it’ll have a cover of over 3.5.
Furthermore, it looks cheap. It has a P/E ratio of just 4.2. In the Footsie, there’s only a handful of companies that are cheaper using that measure. Its price-to-book ratio, a common ratio used for banks that measures a stock’s price relative to the value of its assets, sits at around 0.3.
Like its peers, it’s been hit heavily by inflation. And while rising interest rates have aided the firm by boosting its net interest margin (NIM), this seems to be slowing. Barclays now expects its NIM to come in between 3.05% and 3.1%, down from a previous prediction of 3.15%. A mention of rising costs in Q4 also saw investors react negatively to its latest update.
However, I like the international exposure Barclays has. And the combination of low valuation and high yield is enticing. I already own the stock. With any spare cash, I’ll be buying more in the weeks ahead.
