3 cheap dividend shares from the FTSE 100’s bargain bin

macro shot of computer monitor with FTSE 100 stock market data in trading application

Every week, I root around in the FTSE 100 index’s bargain bin. I like ferreting about for cheap UK shares, trying to identify diamonds in the rough. And with the Footsie largely unloved and underrated by investors, I usually find value stocks to fit my bill. Here are three FTSE 100 stocks I don’t own, but I’d buy and hold at current prices.

Digging up FTSE 100 bargains

When rummaging around in the FTSE 100’s lower reaches, I’m not looking for any old company shares. I’m after particular value stocks: those that I believe have potential to produce superior future returns. This means that I’m hunting for lowly rated stocks with scope to be uprated over time. What’s more, like Warren Buffett, I’m rather not ‘pick up cigar butts from the pavement’. I look to invest in quality companies with simple business plans and, ideally, strong or well-known brands. Also, I aim to find businesses with high earnings yields to fuel future share buybacks or higher cash dividends. And speaking of dividends, I reinvest high yields into buying yet more shares for future portfolio growth.

Three cheap Footsie stocks

With what I’ve outlined above — finding good businesses that are fundamentally undervalued — here are three cheap UK shares in today’s FTSE 100 bargain bin. I would happily buy and hold these three value stocks for future capital gains and bumper dividends. Here they are, sorted by company name:

Company Sector Share price Market value P/E ratio Earnings yield Dividend yield
Evraz Mining 591p £8.6bn 7.8 12.9% 12.9%
Imperial Brands Tobacco 1552.5p £14.7bn 5.3 18.9% 8.9%
Legal & General Financial 276.4p £16.5bn 7.3 13.7% 6.5%

What I have here are three very different businesses, but with rather similar fundamentals. As FTSE 100 members, these are all large, established firms with market caps in the billions. Likewise, all three trade on low price-to-earnings ratios (in single-digits). The three also offer high earnings yields (in the teens). Finally, each offers a dividend yield well above the FTSE 100’s forecast yield of 3.8% for 2021. That ticks three out of three value boxes for me.

Cheap stocks on sale

Evraz is a global steelmaker and miner, with major operations in Russia, Ukraine and North America. The miner’s biggest shareholder is a football celebrity: Roman Abramovich, owner of Chelsea FC. Evraz shares are up 323.7% over the past five years, making it a Footsie stand-out superstar.

Imperial Brands (LSE: IMB) is one of the world’s largest producers of tobacco, cigarettes and vaping products. Although smoking is in decline in the developed world, sales growth in developing countries actually raised cigarette sales in Q1 this year. My third FTSE 100 bargain, Legal & General (LSE: LGEN) is a leading UK provider of life assurance, savings and investments. Founded in 1836, L&G today manages over a trillion pounds of assets for more than 10m clients. It’s a business that I’ve widely admired for many years.

Finally, there may well be reasons why these FTSE 100 shares are cheap. Mining stocks (including Evraz) are notoriously volatile and prone to cutting their dividends in hard times. Imperial Brands has a huge debt burden that would be more onerous if interest rates rose. Also, L&G faces stiff competition from US giants hoovering up customers and their financial wealth. But, on balance, I’d happily buy these three today!

The post 3 cheap dividend shares from the FTSE 100’s bargain bin appeared first on The Motley Fool UK.

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.

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