I’m looking at the unique opportunity to buy dirt cheap FTSE dividend shares

Last year I decided it was a brilliant time to buy UK dividend stocks as many of them were dirt cheap and offered extremely high yields.

I thought these returns would look even better if interest rates fell and savings and bond yields followed. I also thought that would fuel the economy and FTSE100 Stocks across the board.

The key interest rate remains at 5.25%, but my theory is starting to come true as the first cut is imminent. My shares in Lloyds Banking Group have increased by 36.36% in the last 12 months, while Taylor Wimpey has increased by 51.47%.

Hope for high incomes

Others have yet to get started. Insurers Legal & General Group is only up 3%, but I’m hoping for improvement when rates are finally cut, which could happen as soon as September. So are UK stocks ready for a return to favour?

This question is posed by Russ Mould, Investment Director at AJ Bellhas looked into this. He notes that British stocks look cheap, trading between 12 and 13 times earnings, compared to a “fleshy” 23 times for the USA.

The FTSE 100 was weakened by its lack of presence in high-growth sectors such as technology and was heavily weighted towards financials, oil, consumer goods and mining.

But that could change. Mould reckons that an era of higher inflation, GDP growth and interest rates could be better for British economic and financial stocks than the “Low inflation, low growth, low interest rates – the mud of the 2010s” which favored US technology. The next decade could be better than the last for London-listed stocks.

FTSE companies pay some of the most generous dividends in the world, but there’s a catch: just 10 companies represent 55% of the total forecast for 2024.

Oil giant Sleeve (LSE: SHEL) will account for 8.9% of the index’s total dividends, while HSBC will account for 11.3% (as the table shows).

Interestingly, Shell’s yield is not that high at 3.63%. It is forecast to rise by 3.82% in 2024 and 4.06% in 2025, but still.

Comeback of the FTSE 100

The Shell share price has done quite well, up 21.34% in one year, pushing the total return to 25%. It is volatile and dependent on energy prices. Over five years, the stock is up just 8.12%. Considering the challenge of the energy transition, I certainly won’t be gasping for air to buy it. On the plus side, it is cheap, trading at 8.66 times earnings.

The story continues

I can find far higher returns and that’s the beauty of the FTSE 100. Like Russ Mould, I expect things to get better for UK equities. He notes that we are now an oasis of political stability, which contrasts nicely with the US and Europe.

We may be coming out of a recession just as the U.S. is entering one, he adds.

The total income from the FTSE350 is 6.8%, says Mould. “This figure compares very favourably with the Bank of England base rate of 5.25%, the 10-year government bond yield of 4.09% and inflation of 2%.”

After a tough decade or more, undervalued UK dividend stocks could finally be back in the swing of things. I’m betting they will.

The post I’m taking advantage of a once-in-a-lifetime opportunity to buy dirt-cheap FTSE dividend shares first appeared on The Motley Fool UK.

Further reading

Harvey Jones holds positions in Legal & General Group Plc, Lloyds Banking Group Plc and Taylor Wimpey Plc. The Motley Fool UK has recommended Aj Bell Plc and Lloyds Banking Group Plc. 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.

Motley Fool UK 2024