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As an investor, I’m a firm believer that the UK stock market offers me a wealth of opportunity today. The FTSE 100 is packed with high-yield dividend stocks. And many UK shares trade at more attractive valuations than their US peers.
Here’s some areas of the market I’d start looking at today.
The FTSE 100
The UK’s blue-chip index is home to many world-leading companies. A large chunk of these pay dividends that are far higher than I’d get elsewhere in the world. For example, the average yield of the FTSE 100 today is 3.7%. That’s nearly double the average yield of the S&P 500, which stands at 2%.
That means the UK market offers a rich hunting ground for investors wanting to increase their passive income. And most of these dividend payers aren’t struggling firms whose dividends are in peril. They’re established cash machines prospering in a high-inflation environment.
Take BP, for instance. This oil giant is flush with cash right now given higher energy prices. It has nearly $30bn on its balance sheet. Its forward dividend yield is 4%, which is above the market average.
Shares of mining giant Glencore rose 47% last year, making it one of the Footsie’s top performers. Yet despite its share price appreciation, the stock has a price-to-earnings (P/E) ratio of just 5.2. That’s dirt-cheap, as far as I’m concerned. Especially when China’s reopening could push metal prices (and Glencore shares) higher again.
A potential home run
An area that’s piqued my interest lately is the house building sector. It’s no secret that the UK has long suffered from an undersupply of new houses. This chronic shortage of housing has led the government to commit to build 300,000 new homes every year by the mid-2020s. That should benefit the likes of Persimmon, Barratt Developments, and Taylor Wimpey.
As cyclical businesses, house builders’ fortunes are strongly linked to the health of the economy. We don’t know how long or severe a recession will be.
But all these stocks are trading cheaply, and I believe offer me great value today. Plus, their prospective dividends are extremely juicy right now.
Value
The FTSE 100 is trading at a significant discount to other global indexes. The index has an overall price-to-earnings (P/E) ratio of 13, which is significantly below that of the S&P 500 (P/E of 20).
This suggests the FTSE 100 might be undervalued and could therefor go higher in the coming years. In fact, I wouldn’t be surprised to see the index reach 8,000 points for the first time ever this year.
Blue-chip stocks are attractive to investors during recessions because they typically pay dividends. And total dividend payments from the FTSE 100 are forecast to hit a new record in 2023. A predicted £85.8bn is due to head to investors, according to broker AJ Bell.
That’s not to say the UK stock market is risk-free, of course. Dividends could be cut at any time, sometimes without warning. And with the UK already in a recession, stocks could be volatile this year.
All in all though, I think there are some terrific bargains in the UK stock market today. I’ll be spending 2023 adding some of these cheap shares to my own portfolio.
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