I can’t believe how cheap these 5-star income stocks are today…
2025 has proved another strong year for UK shares. The FTSE 100 and FTSE 250 have risen 19% and 7% respectively. And yet these indexes remain packed with great-value income stocks as we look towards 2026.
The following dividend stocks carry enormous dividend yields at today’s prices. But that’s not all, as they also look cheap based on expected earnings.
Here’s why I think they demand serious attention right now.
HSBC
The HSBC (LSE:HSBA) share price has risen 43% in the year to date. And yet, at £11.18, its dividend yield remains at a robust 4.8%, beating the broader FTSE average of 3.1%.
On top of this, predicted dividend growth over the medium term pushes the yield to 5.4% in 2026 and 5.7% in 2027.
These robust dividend projections are underpinned by HSBC’s Solvency II capital ratio of 14.5%. This is the strongest across the UK banking sector, and at the top end of the bank’s 14% to 14.5% range.
The bank’s Asian focus leaves it exposed to China’s spluttering economy and wider regional issues caused by trade tariffs. So that robust balance sheet helps to at least safeguard HSBC’s progressive dividend policy.
That’s not to say I’m expecting a crisis to come along, mind. Indeed, HSBC’s decision to upgrade full-year profit forecasts in late October underlines its reslience to tough conditions. Net interest income is tipped at $43bn, a target Hargreaves Lansdown analysts describe as “a little conservative and… an easy hurdle to clear“.
I believe HSBC is in great shape to deliver robust earnings and dividend growth over time as wealth levels in emerging markets boom. Yet, I don’t think this is reflected in the bank’s current valuation. It trades on a forward price-to-earnings (P/E) ratio of 10.2 times.
Aviva
Aviva‘s (LSE:AV.) share price has also enjoyed similarly impressive gains in 2025. At 655.4p, it’s risen 38% in value, driven by signs of impressive resilience in difficult conditions. Just on Thursday (13 November), it projected it would reach £2.2bn of operating profit in 2025, a full year ahead of target.
Yet, despite its price gains, investors can still get excellent value for money from the insurance giant. Its dividend yield for 2025 is 5.9%. This rises to 6.3% for next year and 6.8% for 2027.
Like HSBC shares, Aviva shares also look cheap based on expected earnings. A prospective P/E of 12.5 doesn’t look much to shout about. However, its corresponding price-to-earnings growth (PEG) multiple of 0.5 does.
Any reading below one implies that a share is undervalued.
As with HSBC, dividend forecasts are given strength by Aviva’s impressive financial foundations. Its Solvency ratio was down in the year to September, but remained at a rock-solid 177%. This matters for a company that earns most of profits from the UK, where growth and inflationary pressures are growing.
It may experience some earnings hiccups in the near term. But I’m confident Aviva will deliver impressive long-term growth along with more large dividends, as demographic changes drive demand for its wealth, retirement, and protection products.
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HSBC Holdings is an advertising partner of Motley Fool Money. Royston Wild has positions in Aviva Plc and HSBC Holdings. The Motley Fool UK has recommended 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.
