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He FTSE 100 rose almost 1% yesterday (October 16), ending the day at 8,329 points. This came after monthly inflation in the UK fell below 2% for the first time since 2021. The expectation is that interest rates will now fall.
Consequently, the index is one step away from reaching a new all-time high. To achieve this it would be necessary to exceed the figure of 8,445 set in May.
It is true that this seems like a tortoise's thing compared to the racing hare that is the S&P 500. The US blue-chip index is up 22.5% since the beginning of January and is entering the third year of a bull market. It has almost doubled in five years!
Even if we include its generous dividends, Footsie can't compare to that performance. However, as things stand, I'd rather invest in FTSE 100 dividend stocks than the S&P 500 at the moment. Here's why.
More value on offer
Due to the raging bull market, many US blue chip stocks appear overvalued. The index as a whole trades with a price-to-earnings (P/E) ratio of around 28. That's well above its historical average.
By contrast, the FTSE 100's P/E ratio is around 15.4. So there is a huge discrepancy of values.
Now, part of that is down to the composition of the FTSE 100, which is dominated by mature companies in sectors such as energy, financial services and consumer staples. These do not typically have high multiples, while some US tech giants have market capitalizations larger than all UK listed companies combined.
However, some of the discrepancy is due to extreme valuations, including tesla. Shares of the electric vehicle (EV) pioneer are trading at a surprising forward P/E ratio of 72.
The FTSE 100 dividend yield is currently around 3.5%. The performance of the S&P 500? Just over 1%.
Based on this, I'd say there's a lot more value on offer in the UK right now.
High Yield stocks
A cheap dividend stock I like right now is Aviva (LSE: AV.). The FTSE 100 insurance giant offers a yield of 7.1%. That's basically double the market average.
In recent years, the company has sold many overseas assets to focus on the UK, Ireland and Canadian markets. As a result, it has strengthened the balance sheet and is much more agile.
In August, the company reported group-wide growth and increased its interim dividend by 7%. Its private health insurance business is booming due to record NHS waiting lists.
A deep recession in the UK would present challenges that could lead to lower profits. But with its strengthened balance sheet and vast experience, you'd expect the blue-chip insurer to weather any economic storm that comes its way.
While dividends are never guaranteed, analysts predict a whopping 8% yield for Aviva in 2025. And the P/E ratio is just 10!
silly takeaway
To be clear, I'm not saying the S&P 500 won't go even higher. As mentioned, we are in the third year of a bull market and historically they have lasted 5.5 years, on average.
My portfolio has many S&P 500 stocks and I hope to hold them for years to come. However, with the high-yield dividends offered by cheap shares like Aviva, my eyes are firmly fixed on the UK market at the moment.
