Could the FTSE 100 make you a million in 2019?

Here’s why I think the FTSE 100 (INDEXFTSE: UKX) is a serious buy right now.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve suggested that the FTSE 100 could be set for a record 2019, but I really wasn’t expecting it to start the year with such a bang.

After a 12% fall in 2018 (with the FTSE 250 losing 15% too), we’ve seen a storming recovery since the New Year of a shade short of 10%.

Obviously it’s way too early to guess at how the Footise will end the year (especially as it had a reasonable first half last year before plunging), but I’m seeing consistent signs that UK shares as a whole are significantly undervalued.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Gloom

First off, you really don’t need to be an investment expert to see how pessimistic people are feeling about the economy and about UK shares now, especially as the Brexit-related storm clouds have been gathering. And whenever emotion is driving people’s attitudes to shares, in my experience it’s always overdone.

So when markets are down due to people feeling gloomy, it’s very likely that they’re too far down.

Strong companies

That’s supported by the actual fundamental performance of our companies. Looking at our very biggest listed firm, Royal Dutch Shell, we’ve seen a solid recovery from the oil price slump, with forecasts for strong earnings growth plus big dividends to follow.

Unilever is the second biggest in the FTSE 100, and it’s just been carrying on with its decades long record of steady growth in earnings and dividends.

Next biggest is HSBC Holdings, which has been through a downturn. But since 2016, the Asia-focused bank has been seeing a sharp recovery in earnings, its dividends are yielding 6% and better, and the shares are trading on low P/E valuations.

That’s pretty much the general picture for many FTSE 100 companies these days — decent performance, low valuations, and strong dividends. And dividends for me are the true measure of the Footsie’s undervaluation, with overall yields from the index steadily climbing.

Great dividends

I’ve been following AJ Bell’s quarterly Dividend Dashboard, which tracks forecast yields (among other measures). At the back end of 2016, I thought forecasts of a total yield for 2017 of 4.2% were remarkable and indicated an undervalued market. It’s not that many years ago that I looked on yields of around 3% to 3.5% as being about par for the index.

And things have just got steadily better and better.

While the FTSE 100 has stagnated since then, yields continue to rise. In fact, the latest Dashboard from the final quarter of 2018 shows forecasts for 2019 dividends having soared to a whopping 4.9%. With inflation running at around 2% and cash ISA accounts struggling to get close to 1.5% in interest rates, that looks like a serious disjoint with reality.

Millionaire

Now, you’re unlikely to make a million in just a year, but listen to this…

One of my favourite bits of investing statistics is that if you’d invested £1,000 in the UK stock market in 1945 and reinvested all your dividends, according to the Barclays’ Equity Gilt Study, it would have grown to £1.8m over the next 60 years, even taking inflation into account.

I say make the most of the FTSE 100’s weakness while you still can.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Barclays and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Here’s my plan to survive and thrive in a stock market correction

A falling stock market can be an opportunity, but investors need a plan. Stephen Wright shares his strategy for taking…

Read more »