The FTSE 100 is packed full of bargain shares but I wouldn’t buy them all. Here are three I refuse to touch, even though plenty of investors would.
The first is Vodafone Group (LSE: VOD). There’s no mystery about its popularity given today’s stunning forecast dividend yield of 10.4%. However, that has looked vulnerable for yonks and now the board has bowed to the inevitable.
Vodafone will also slash its dividend in half from 2025, which shrinks the forecast yield to a more sensible 5.81%. That’s still above the FTSE 100 average of 3.9%, but there are other reasons why I’ll seek my income elsewhere.
Should you invest £1,000 in Imperial Brands right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Imperial Brands made the list?
I’ve given up on this stock
The Vodafone share price has been falling for as long as I’ve been buying shares. It’s down 50% over five years and 25% over one. Inevitably, it looks cheap, trading at just 7.1 times earnings. And I accept that at some point, the shares may recover, with Margherita Della Valle the latest CEO working to turn things around.
Vodafone has now raised €12bn from the sale of its Spanish and Italian divisions, and plans a €4bn share buyback. But I still feel that the company has let investors down once too often, and I won’t be betting my money on its recovery.
Talking about letdowns brings me to the second share I won’t touch: grocery fulfilment technology play Ocado Group (LSE: OCD). Its shares have also taken a beating. In January 2021, they spiked to 2,883p. Today, they trade at around 457p, down 85%.
To be fair, they’re up 8% over 12 months, but are crashing again. There’s a chance they could rebound when interest rates fall, the economy picks up and investors are ready to take a punt on risky growth stocks again.
However, like Vodafone, Ocado is a serial loser. It has only made a pre-tax profit in three of its 22 years, and the fourth profit looks some way off. Hope springs eternal but what really worries me is the fallout from its Ocado Retail tie-up with Marks & Spencer Group. The high street chain is refusing to pay a £190m bill saying Ocado hasn’t delivered on its promises. I’m going nowhere near it.
Power down
I wouldn’t buy renewables-focused power giant SSE (LSE: SSE), either. In 2022/23, SSE paid a dividend of 96.7p per share. That has been rebased to 60p for 2023/24, cutting the yield from 6.16% to 3.79%. The board is planning “at least 5% annual increases to March 2026”, but I’m still not tempted.
The big attraction of buying SSE shares was for income rather than growth, and now that income is being cut. The share price is down 7.94% over 12 months.
The path to net zero was never going to run smooth and SSE has to invest £9bn in critical infrastructure over the next four years. Output has been hit by adverse weather and short-term plant outages. Higher interest rates have driven up costs and supply chain delays have slowed turbine installation on Dogger Bank A.
SSE still expects to hit guidance of more than £750m in adjusted operating profits, but for me, the risks outweigh the rewards. It looks cheap trading at 9.54 times earnings, but being cheap isn’t enough on its own. I’ll avoid.
