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He FTSE 100 offers some of the best income stocks in the world. After a tough year for UK shares, many of them look too cheap to resist. I've been buying everything I can afford, but I still feel like I'm missing out on the untapped potential of the UK market.
The UK stock market remains unloved and overlooked at the moment. Our economy has been through a difficult path. Brexit has changed perceptions. Investors around the world have set their sights on booming U.S. technology stocks, almost at the expense of everything else.
As valuations of US megacaps become overextended, I expect some will turn their attention back to UK blue chip stocks. Income seekers like me have never lost faith.
Rich dividends offered
As we saw late last year, the FTSE 100 is likely to rally as investors anticipate interest rates will start to fall. After rushing in November and December, investors are now cautious, but the first cut should still come in the summer.
As that happy day approaches, dividend stocks will look relatively more attractive as savings rates and bond yields fall. I don't want to wait until the rally is underway before buying income stocks, as by then it will be too late and I will have to pay more for them as a result.
Buying before a possible rally requires patience. I have no idea when it will arrive. The advantage is that I can reinvest my dividends at the current low valuations while waiting for better days and, as a result, acquire more shares.
Last week was bad for one of my favorite portfolio holdings, the insurer and asset manager. Legal and General Group (LSE: LGEN). I bought the stock twice last year, in June and September, and received my first dividend shortly after the second purchase. I ended 2023 with a 15% positive return, which I considered a quick and nifty return.
Cheap stocks Available
I'm not feeling so smart today, with the L&G share price down 7.77% in a week. In 12 months, it has dropped 8.67%. It was hit by lower rate cut expectations and a negative report from broker Citi on Friday, which cut 2023 earnings per share estimates by around 27% ahead of full-year results on March 6.
Their verdict seems harsh, but we'll know more next month. What I do know is that L&G is even cheaper today, trading at just 6.1 times earnings, with a staggering 9.1% forecast yield. I still believe the share price will recover when interest rates fall and I would buy more now if I had money to spare.
Like all income stocks I buy, I plan to hold this one for a minimum of 10 years and, ideally, for life. That way I can withstand short-term turbulence.
There are always risks when buying individual stocks. That's why I'm buying a spread of at least a dozen of them, so that if some underperform, others can make up for it. This is exactly what happened last week, when shares of another dividend growth stock I own, Smurfit Kappa Groupjumped a mighty 10.97% thanks to positive results.
I hope to retire in approximately 10 years. This is my latest push to build a broad, balanced equity portfolio, and I won't sit idly by.
