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I think now is a good time to go shopping. FTSE 100 dividend stocks.
Blue chip UK shares tend to have one or more special qualities that make them ideal dividend earners. Market-leading positions, strong balance sheets, and diversified operations often pave the way to large dividends that can grow over time.
And right now, shares in Britain's main stock index look seriously undervalued. FTSE 100 companies now trade on an average forward price-to-earnings (P/E) ratio of 10.5 times. That's well below the historical average of about 16 times.
Here are two cheap passive income stocks I'm thinking about buying in March. Each of them has a dividend yield well above Footsie's forward average of 3.8%.
United Utilities
Water companies like United Utilities (LSE:USA) are reliable dividend payers thanks to their ultra-defensive operations.
Our demand for water remains unchanged regardless of any economic, political or social crises that may occur. This gives them profits, cash flows, and the confidence to pay market-beating dividends year after year.
And while its operations are highly regulated, rules that allow for inflation-linked price increases help it offset the impact of higher costs on its profits.
Investing in water companies is riskier than usual today, as politicians and regulators point out. Controversies over the sector's environmental performance and investment history in particular could have big consequences for the FTSE firm and its peers.
But I think buying United Utilities could still be a good idea given its low share price. For the next financial year (until March 2025), the company is trading with a forward price-earnings growth (PEG) ratio of 0.2. Any reading below one suggests a stock is undervalued.
With a 5% dividend yield, I think it's an attractive value stock right now.
D.S. Smith
box maker D.S. Smith (LSE:SMDS) is another cut-price star on my watchlist this month. I already own it in my stocks and Shares ISA, and its overall lasting value has me considering adding more to my holdings.
Today it trades with a forward price-to-earnings (P/E) ratio of 9.8 times. It also offers a huge dividend yield of 5.6%.
DS Smith has recently attracted the attention of a major rival as the takeover fever in London has intensified. Last month he announced Worlds (also from the FTSE 100) was “considering a possible offer“, although there has been no more news.
Rumors have circulated for years that he could become a target. The packaging sector is highly fragmented. And DS Smith, with its extensive geographic presence in North America and Europe, along with its focus on sustainability, has considerable long-term potential.
I bought the company for my ISA as a way to capitalize on the growing e-commerce and food retail segments. Its boxes and packaging solutions are essential for both sectors. What's more, its excellent track record of innovation makes it a preferred supplier to industry giants such as Amazon.
Short-term pressure on consumer spending may hamper profit growth. But overall, I think it's a brilliant bargain at current prices.
