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I hope to have new funds to invest in the coming weeks. So I’ve been looking for the FTSE 100 for the best value stocks to add to my investment portfolio.
The following British blue chips are trading with a price-earnings (P/E) ratio below the FTSE average. They also offer forward dividend yields above the median index reading.
What would be the best buy for me right now?
Tesco
Today, Britain’s largest retailer is back in the news for speculation about possible asset sales. Sky News reports that Tesco (LSE:TSCO) is considering divesting its banking division for a price of up to £1bn.
This could be good news for the supermarket’s shareholders. It would give the company more financial clout to invest in pricing and thus better take on discounters. An asset sale could also boost the level of dividends it pays out in the near term.
But even if Tesco Bank finds a new owner, it won’t be a game changer for me as a potential investor. I think the business could struggle to turn a decent profit in the next few years as competition increases.
Discount chains Aldi and Lidl are embarking on rapid store expansion. Aldi will open two new stores next month alone and hire hundreds of new workers at its distribution centers.
At the same time, Tesco’s new and established rivals are spending heavily on its online operations to steal customers. internet giant Amazon it specifically threatens to be a significant disruptor to the FTSE firm. Chief Executive Andy Jassy also told the financial times What the company plansgo big” with its physical Amazon Fresh stores.
Today, Tesco’s share price is trading with a forward price-earnings ratio of 14.1 times. It also has a dividend yield of 4.2%. However, the long-term threat to margins it faces makes it a value stock that I want to avoid.
taylor wimpey
I would be more happy to add more taylor wimpey (LSE:TW) shares to my investment portfolio. And it’s not just because the homebuilder offers better value for money on paper.
The company is trading with a P/E ratio of 12.4 times by 2023. It also has a juicy dividend yield of 7%.
I think Taylor Wimpey is a better bet for both long-term capital appreciation and dividends. I think the gains here could rise considerably as the population expands and the demand for new housing inevitably increases. The National Housing Federation says 145,000 new homes are needed each year through 2031.
However, I’m still not tempted to buy more Taylor Wimpey stock. This is because I think that dividends could disappoint in the short term due to the difficulties in the UK property market. Median sales prices were up just £14 year-over-year in February, according to right movement. This was the lowest increase on record.
Right now, I prefer to buy other FTSE 100 shares for dividend income in 2023. However, I will look for reasons to increase my stake in Taylor Wimpey as the year progresses.
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