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If there’s one good thing about a prolonged period of market malaise, it’s that it leaves some dividend stocks trading on (very) cheap valuations. What better time for me to buy, bank that passive income and wait for value to be recognised?
With this in mind, here are three corkers I’d be comfortable buying in September, albeit with a healthy appreciation of the risks involved.
IG Group
With its bumper 7% dividend yield. FTSE 250 online trading firm IG Group (LSE: IGG) looks very tempting.
The size of this cash return is partly due to the fall in the share price since the beginning of the year (the cheaper a share gets, the higher its yield goes). This, in turn, can probably be attributed to concern over fewer clients actively trading during this tough economic period. The sudden departure of CEO June Felix for health reasons has been another unwelcome turn of events.
I reckon a lot of this is now factored into the price. IG shares change hands at just over six times forecast earnings. That looks screamingly good value for a market-leading company whose line of work allows it to consistently generate fat margins. Despite lower client activity, IG also recorded record annual revenue of over £1bn for the first time in FY23.
With its foray into the US via the acquisition of the tastytrade platform going very well and a solid financial position, I wouldn’t hesitate to buy now if I had the cash to hand.
Central Asia Metals
AIM-listed copper miner Central Asia Metals (LSE: CAML) is another company that’s seen its shares significantly lag the market year-to-date. This has succeeded in pushing the yield up to a monster 8% — more than double what I’d get with a bog standard fund that tracks the FTSE 100.
Again, I see this as an opportunity, especially as the stock can be picked up for a little less than eight times earnings.
Granted, the current valuation makes some sense. Concerns over a slowing Chinese economy have hit commodity prices, dragging UK-listed miners down by association. After all, the country is by far the largest consumer of the red metal in the world.
Notwithstanding this, Central Asia Metals boasts a solid balance sheet. I’m also bullish about the longer-term outlook for the company as a result of the growing demand for clean energy (which will require an enormous amount of copper).
Liontrust Asset Management
Go back two years and Liontrust Asset Management (LSE: LIO) was trading at almost 2,500p. However, difficult market conditions and a controversial (now dead-in-the-water) acquisition strategy have taken a lot of the shine off. Liontrust shares can now be bought for 635p (or 8 times earnings).
Rebuilding confidence will take time and there’s no guarantee investors will be that forgiving. Indeed, there will be even more pressure on its managers to justify their fees and outperform the market going forward.
If Liontrust does succeed, however, the payoff from buying now could be significant. In the meantime, the shares yield an astonishingly high 11%.
I wouldn’t rule out a cut. But even a reduced dividend might be worth grabbing.
As always, being properly diversified and holding a number of dividend stocks in different sectors will provide some protection.
