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It’s always a good time to buy FTSE 100 dividend shares, in my view, but right now looks particularly tempting. After recent volatility, a heap of top UK blue-chips are trading at dirt cheap valuations. Better still, many are offering sky-high yields of up to 10% a year, some of the juiciest in the world.
This is a far superior return to cash, with potential share price growth on top. Naturally, buying shares is riskier than sticking money in the bank, but in the long run it should prove a lot more rewarding. Here are five FTSE 100 dividend stocks I’ve bought in recent months.
Great bargains out there
My favourite income stock is insurer and fund manager Legal & General Group. It now trades at a mere 5.7 times earnings (15 times is usually seen as fair value) while yielding a whopping 8.86% a year.
Super-high yields like this one can be vulnerable, but L&G appears to be generating enough cash to cover its payout, and profits should rise on the recovery. Like all five stocks listed here, I plan to hold its shares for years and with luck, decades. That offers plenty of time for my capital and income to hopefully compound and grow.
I’ve bought shares in Lloyds Banking Group twice lately, taking advantage of its cheap sub-45p share price. While it doesn’t yield quite as much as L&G, today’s income of 5.7% is forecast to hit 6.2% next year. Again it’s cheap, trading at 5.8 times earnings.
Lloyds shares have been cheap for years, so there’s no guarantee they’ll take off like a rocket. That doesn’t worry me too much. I’ll keep reinvesting my dividends at today’s low price, and wait for market sentiment to swing in its favour.
I’ve also topped up my stake in fund manager M&G, which yields 10.27%. That’s a dizzyingly high yield but I think the company has the capital strength to maintain it. This is the third stock I’ve bought in the financial services sector, which offers rich pickings today. Happily, I have diversification elsewhere in my portfolio.
These things take time
I bought shares in troubled housebuilder Persimmon at the tail end of 2022, shortly before it slashed its dividend by 75%. That didn’t surprise me. It was yielding almost 20% at the time.
Investors view Persimmon as the FTSE 100 builder most vulnerable to a house price crash. As a result, it may also have the most recovery potential when interest rates peak and start falling. Today, it trades at just 4.3 times earnings, while yielding 5.67%.
I suspect more pain lies ahead for Persimmon but taking a five or 10-year view, I still think it will prove rewarding. The same goes for mining giant Rio Tinto, which has been hit by panic over the wobbling Chinese economy.
China is the world’s biggest consumer of commodities such as iron ore, copper, aluminium and lithium, so it’s a huge blow. Yet I think the danger is largely priced in. Rio Tinto trades at just 7.6 times earnings and yields 7.86%.
I’ve been on a bit of a spree and I’m not done yet. There are just too many world-class FTSE 100 dividend shares out there, and they’re so cheap.
