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Is now a good time to buy cheap UK stocks with sky-high dividends?




As a UK based investor, I spend a lot of time searching for UK stocks. But another market I prefer is the US. There is no doubt that the market offers tremendous opportunities to invest in exciting growth stocks. It has a dominant technology sector, especially with companies such as Apple, Microsoft, and Amazon. But in my recent searches for income and cheap stocks, it was the UK market that stood out.

So is now a good time to buy UK stocks? Let’s take a closer look.

5 stocks to build wealth after 50

As markets around the world are reeling from the coronavirus pandemic and many great companies are trading at discount prices, now may be the time for smart investors to make potential trades.

But whether you’re a novice investor or a seasoned expert, deciding which stocks to add to your shopping list can be a difficult prospect in unprecedented times.

Fortunately, the Motley Fool UK analyst team has put on the shortlist five companies they believe to still have significant long-term growth prospects despite global upheaval.

We were sharing the name in a special free investment report that you can download today. And if you’re over 50, I believe these stocks can fit into any well-diversified portfolio.

Click here to get your free copy now!

sky high dividend yield

The best place to find dividend stocks in my opinion is FTSE 100. It includes many companies that pay significant dividends. Some even offer double-digit returns as I write today.

Rio Tinto, for example, has a dividend yield of nearly 14%. A mining company with significant exposure to iron ore. The price of this product has skyrocketed last year, meaning Rio Tinto can pay a very high dividend. However, it is expected to decline in 2022, but still expect a yield of 8.3%. Dividends can always fluctuate, and it could be worse if a company underperformed. Nevertheless, I see the prospects for Rio Tinto positively due to the essential minerals it produces for its electrification and decarbonization efforts.

We also find it useful to compare the FTSE 100 dividend yield to other markets. In this regard, the FTSE 100 achieved a 12-month return of 3.8%. In comparison, the S&P 500, an index equivalent to large-cap US stocks, has a 12-month return of 1.3%.

So, if you buy the iShares Core FTSE 100 ETF instead of a (more risky) single stock, you can still get a decent dividend yield.

cheap british stocks

Focusing again on the FTSE 100, the index’s forward price-to-earnings (PER) is as low as 12. FYI, it hasn’t been this cheap since 2012. The S&P 500 is graded. At a much higher forward P/E 21.

The FTSE 100 also has cheap stocks. Lloyds currently trades at a P/E of 6.5 and could benefit from higher interest rates. ITV looks cheap with a P/E of 7.7 if successful in the transition to on-demand viewing.

However, you should consider the growth estimates for UK stocks. As it stands, City analysts forecast FTSE 100 revenue growth to be only 4% in 2022. If I’m looking for growth stocks, this isn’t very interesting. Still, I think you can find growth stocks by digging a little deeper into the FTSE 100 index.

Is this a good time to buy UK stocks?

As an investor, I should always look at the risks ahead. In essence, you wouldn’t know for sure what all these risks are. A good example of this was in February 2020, just before the stock market crashed due to the coronavirus.

But I see a lot of opportunities for long term investors like me in the UK market today. I’m going to offer some of the cheap, high-dividend stocks.

Dan Appleby owns shares in Rio Tinto and ITV. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of the Motley Fools Board of Directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the Motley Fools Board of Directors. Motley Fool UK recommended Amazon, Apple, ITV, Lloyds Banking Group and Microsoft. The views expressed about the companies mentioned in this article are those of the authors and may differ from the official recommendations we make on subscription services such as Share Advisor, Hidden Winners and Pro. Here, Motley Fool believes that taking into account a variety of insights can make you a better investor.




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