Image source: Getty Images
From October 17 to 27, the FTSE 100 The index fell 5%, but is up 1.7% in the last five trading days. Despite this modest recovery, I consider the index to be among the cheapest in global markets, both historically and geographically.
In fact, if I had the necessary £1.85 billion on hand, I would buy the entire Footsie today. This is because it trades at a low multiple of 10.9 times earnings, resulting in an earnings yield of 9.2%. Thus, Footsie’s 4% annual dividend yield is covered by 2.3 times profits.
Two cheap purchases
While this top-line index seems too low today, there are even bigger deals lurking in it. For example, I count at least 10 stocks that offer cash returns greater than 8% annually. Wow!
What’s more, here are two undervalued stocks from well-established financial companies that my wife and I bought for their delicious dividends and capital gains potential.
#1: Legal and General
Legal and General Group (LSE: LGEN) is one of the UK’s largest and oldest insurers and asset managers. Founded in 1836, it has been in operation for 187 years. Today the group manages assets worth £1.3 trillion for 10 million clients.
While working in the financial sector for 15 years, I became a big fan of L&G. Therefore, my wife and I bought L&G shares in July 2022, paying 246.7pa per share. Unfortunately, the share price has been weak since its 2023 high in early March.
On Friday 3 November, L&G shares closed at 222.7p, valuing this business at £13.3bn. To me, that’s too low a price for such a brilliant business. And while the share price is down 3.7% in one year and 15.1% in five years, these returns exclude sizable dividends.
Currently, this undervalued stock offers a dividend yield of 8.8% per year. That’s 2.2 times the cash yield of the broader FTSE 100. So, while we sit back and wait for the L&G share price to recover, we are depositing almost 9% a year.
#2: M&G
My second cheap stock M&G (LSE: MNG), has a lot in common with Legal & General. Both companies are asset managers and help a wide range of institutional and individual clients.
When global markets are healthy and rising, the stock prices of these financial companies tend to perform well. But when stocks and bonds take a beating, as they did in 2022, your stocks suffer.
At its 52-week high, it reached a high of 229.9 pence on March 2. But then the US banking crisis sent financial stocks tumbling. On March 20, M&G shares had hit a low of 168.35p. Oh.
On Friday (November 3), M&G shares closed at 202.6p, valuing the group at £4.8bn, a minnow in the FTSE 100. Meanwhile, the dividend yield has risen to an attractive 9. 8% annually, one of the highest in the London market.
To me, both stocks are exceptional dividend buys right now. That said, future dividends are not guaranteed, so they may be cut or canceled at any time. Furthermore, both L&G and M&G could be hit hard in the next Mr Market crisis.
Still, I hope to hold on to these FTSE 100 shares for many years to come. And if I had money to invest, I would buy more shares of both right away!
