UK stocks have sold off heavily as concerns about the US economy have grown. But I’m not running for the hills. In fact, I’m looking for high dividend stocks to buy at knockdown prices.
I have been in the investing business long enough to know that volatility is an inherent part of investing in stocks. I also know that the stock market has a history of recovering over time and that those who buy when prices are low have the chance to maximize their returns over the long term.
Unfortunately, I don’t have any cash in my investment account to take full advantage of last week’s market crash. If I did, here are two FTSE100 dividend-paying bargains I would buy today.
Aviva
When the US economy catches a cold, the whole world sneezes, as the saying goes. But I believe the renewed decline in the Aviva (LSE:AV.) makes the UK, Ireland and Canada-based company an even more attractive buy.
The Footsie company is currently trading at a price-to-earnings ratio (P/E) of 10.5. And its dividend yield is 7.4%, more than double the index average.
Despite the risk of contagion in the US, I think things are looking up for the financial giant. Last week’s interest rate cuts should boost demand for the company’s life insurance, pensions and other discretionary products. And further austerity measures at the Bank of England could soon be on the horizon.
Aviva’s large general insurance business should continue to offset weakness in other areas of the business. While this weakness remains a problem, spending on home, auto, pet and other insurance remains broadly stable through all phases of the economic cycle.
This in turn means that Aviva should continue to have strong cash flows as premiums continue to roll in, giving the company the strength to continue paying market-beating dividends. Fortunately, the company is already sitting on a huge pile of excess cash, its Solvency II ratio was 206% in March.
Aviva’s share price is up 26% over the past year, and I expect it to rebound significantly from last week’s decline.
Phoenix Group
I would also try to get a position in Phoenix Group Holdings (LSE:PHNX) if I had cash to invest today.
After last week’s market crash, the Footsie company has a dividend yield of 10.2%, one of the highest in the index. At the same time, a price-to-earnings (PEG) ratio of 0.3 suggests the stock is also dirt cheap based on forecast earnings.
A value below 1 indicates that the share is undervalued. The value of Aviva shares is 0.5.
The beauty of both stocks is that their markets are growing rapidly. Intense competition remains a threat. But they have the opportunity to deliver impressive long-term earnings growth. This could consequently lead to steadily increasing dividends over the long term.
Speaking of which, City analysts expect dividends on Aviva and Phoenix shares to continue to rise at least until 2026. Phoenix’s December Solvency II ratio of 176% also provides the company with a strong foundation to meet these optimistic forecasts.
The post “2 cheap FTSE 100 dividend stocks I’d buy after last week’s flop!” appeared first on The Motley Fool UK.
Further reading
Royston Wild has positions in Aviva Plc. The Motley Fool UK has no position in any of the stocks mentioned. The views expressed on companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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