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bought FTSE 100 actions to try to generate long-term passive income. But how can newcomers to the stock market know when is the best time to get started?
I always say that the best time is now, today. I've never seen a good way to time the market. And none of the world's leading investors have ever done it.
So let's start as soon as we can, invest as much as we can, and keep going as long as we can.
A lucky start?
But what if, as luck would have it, we start at a time when stocks are especially cheap and dividends are unusually high? That can give us an extra boost.
I think we're in that situation right now. Stock valuations are low and dividend yields are high.
But first, a brief warning about Vodafone (LSE: VOD). Vodafone shares have seen a slow and prolonged decline.
Broker forecasts suggest a mediocre price-to-earnings (P/E) ratio of 15, but that will fall close to 10 by 2026 due to good earnings growth expectations. That's not high.
Dividend cut
The fall in price raised the dividend yield to 11%. Therefore, a low share valuation and a huge dividend. Shouldn't we, long-term income investors, chip in with every penny we can spend?
Well, in a highly anticipated move, Vodafone has just halved its dividend, starting in 2025.
As it happens, the company has long needed the kind of restructuring it is receiving now. And I rate it as a good (if a bit risky) purchase now.
But he does warn us against simply buying low-value stocks with the highest market returns.
Still, I really think those starting a stocks and Shares ISA this year could be off to a good start.
Estimates vary, but it appears the FTSE 100 now has an average P/E of around 12. Compared to a long-term value of around 15, that's low.
Forecasts put the overall FTSE 100 dividend yield at 3.9% this year and 4.2% next. That's relatively high and there are more.
Additionally, share buybacks are increasing and it looks like 2023 could become a record year for them.
What sectors?
However, I see a risk. The expected dividend growth is not well distributed and appears to be concentrated in a few sectors.
According AJ Bell's Dividend panelThe banks are up to par, with HSBC Holdings towards the highest dividend increase in cash terms. Oil giants PA and Shell should see big increases too, as should British American Tobacco.
Perennial Income Favorite National Network Should also be in the top 10.
It's tempting to look for the biggest dividend gains in the top sectors. But I think we have to be very careful about diversifying in times like this. I see it as an essential way to help keep risk low.
But I think this could turn out to be the best starting year we'll see in a long time.
