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looks like him FTSE 100 it could be poised for record dividend payments in 2023, with forecasts suggesting as much as £85.8bn in total. That makes me think now is a good time to buy dividend stocks.
I see a lot of undervalued stocks out there, offering high dividend yields. These two, in particular, look very cheap on traditional price-to-earnings (P/E) valuations.
Dirt
Speaking of cheap dirt, my top pick benefits from dirt. Well, valuable dirt, in the form of metals and minerals. The mining and raw materials business is sitting idle at the moment, and today I am focusing on glencore (LSE: GLEN) specifically.
We’re looking at an expected dividend yield of 7% here. That alone makes the stock look attractive to me. But what about your assessment?
Forecasts put Glencore shares at a forward P/E of just six. All things being equal, that would be a super cheap valuation. Of course, other things are rarely the same. And stocks often have low valuations when their outlook is problematic.
Profits
Glencore’s earnings are expected to dip a bit over the next two years, so a lower P/E may be justified. But dips would lift the P/E only to around seven, about half the FTSE 100 average.
The demand for raw materials in the next two to three years seems uncertain at the moment. And uncertainty is often the biggest drag on stock prices. So, we could see further weakness in Glencore’s share price in 2023.
But by these fundamental measures, stocks really look cheap to me.
Sure
I think insurance stocks are also good value right now. And I think legal and general (LSE: LGEN) stands out for its exceptional combination of P/E and dividend yield.
After a weak couple of years for stock prices, forecasts put both measures at around seven. Again, that’s about half the FTSE 100 P/E average. And this time, there are no expected earnings dips on the horizon.
The dividend forward of 7.3% is also much higher than the market average, leading to the rare valuation mix that caught my eye.
Economy
I think the risk comes from our uncertain economic outlook. Oh, and the pressure it puts on financial stocks in general.
The insurance industry can be cyclical, with volatile stock prices. And dividends may not be the most reliable, prone to being cut from time to time. Legal & General hasn’t cut its dividend in the last decade, mind, while others have.
Diversification
Once again, I think Legal & General looks very cheap on the fundamentals.
In fact, both are on my shortlist for my next purchase. And the best way I see to balance uncertainty and risk is to buy them as part of a diversified dividend portfolio.
That way, a down cycle in the commodities business should cause me less pain. And the same goes for a drop in financial sector sentiment.
And when both happen together? I think it is time to buy and lock in some solid dividend yields for the long term.
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