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LSE shares are some of the cheapest in the world right now. Heaps of UK companies listed on the London Stock Exchange look great value and offer eye-catching dividend yields too.
If I hadn’t started using this year’s £20,000 Stocks and Shares ISA allowance, I’d start buying FTSE 100 companies like these.
Legal & General Group is one of my favourite FTSE 100 stocks of all. The obvious appeal is its inflation-busting forecast yield of 8.9% a year. It’s only covered just 1.4 times by earnings, where a figure of two is preferable, so that’s a risk. However, management has pledged to increase shareholder payouts by 5% both in 2023 and 2024. I feel it’s safer than most.
Three companies I rate
L&G’s earnings looks set to rise as it takes on more corporate pension schemes, while annuity sales are rising along with interest rates. Better still, its underperforming fund management arm LGIM should benefit when markets finally recover. Earnings could suffer if the UK falls into recession. However, that risk is mitigated by today’s dirt cheap valuation of just 5.9 times earnings.
I own L&G shares and recently added FTSE 100 mining giant Glencore (LSE: GLEN) to my portfolio. Its shares are even cheaper, trading at 4.02 times earnings. The forecast yield is also impressive at 8.2% a year.
Glencore is a slightly riskier buy than L&G. China is the world’s number one consumer of metal and minerals but its economy has been sluggish, hitting demand and prices. It won’t help if the US slides into recession. This explains why Glencore is so cheap.
Commodity stocks are cyclical. The best time to buy companies like Glencore is when they’re down rather than up. Its share price may take time to recover, but I’ll reinvest my dividends to pick up more stock while I wait.
Next on my buy list
I don’t yet own housebuilder Taylor Wimpey (LSE: TW) but plan to put that right shortly. This is another amazing FTSE 100 income stock, forecast to yield 7.7% in the year ahead. It’s also cheap, trading at 6.3 times earnings.
There’s an obvious reason why its shares are trading at a discount. The mortgage crunch will hit demand for new homes, knocking sales and profits. At the same time, inflation has been pushing up building costs. Yet the board seems keen to carry on returning capital to shareholders. Taylor Wimpey’s share price could bounce back when interest rates peak and optimism returns. I hope to buy before then.
These three stocks offer average forecast yields of 8.27% over the next 12 months. If I chose to split a £20k ISA equally between them I could potentially get income of £1,654 over the next 12 months. With luck, I’d enjoy some capital growth on top.
This isn’t guaranteed, of course. Dividends can be cut. Share prices can fall, even cheap ones. However, given that I’d aim to hold or three stocks for a minimum 10 years, and ideally longer, I can look past these short-term risks. I’d hope my investments will compound nicely to lift my income stream far beyond £1,654 a year over time.