It’s a tough world out there, but I see two positives regarding the market environment so far this year. Firstly, value-oriented FTSE 100 stocks have held up better than growth stocks. Secondly, FTSE 100 valuations are broadly lower, suggesting I could potentially buy shares for less than they cost at the start of the year.
High-yield value stocks
In even more positive news for me, FTSE 100 income yields have generally risen across the board as share prices have dropped throughout September. The key drivers behind this fall were concerns around the UK economy, alongside the now notorious mini-budget.
Market turmoil can bring opportunity for me. As such, I believe I’ve unearthed some underpriced, high-yielding stock market gems following the September market dip.
The first of these is BT Group. The share price has fallen by more than a quarter (25%) this year. The result is a spike in its dividend yield. With an expected yield of 6% now, it’s one of the FTSE 100’s highest-yielding stocks. The company is integral to the Government’s superfast broadband pledge, so gives me a defensive buffer as well as a competitive income.
Another heavily discounted stock is Schroders. It’s priced at 30% less than it was at the start of the year. I see its expected 5% yield as impressive. With yearly earnings growth of 7%+, and analysts forecasting a 50% valuation hike over the next 12 months, I’m keen to buy.
Finally, advertising group WPP, has seen 33% slashed off its valuation this year. Its expected yield at 4.5% is healthy. The company generates revenues from around the globe so isn’t hamstrung by the UK’s economic turmoil. Its forecast earnings growth is in double-digits, and I expect this to reflect positively on the share price in due course.
Long-term outlook for dividend payers
I find these FTSE 100 stocks attractive, but it’s important not to fall into income traps.
Two specifically come into my mind. The first is the bargain trap. I know the market tends to be efficient at pricing stocks. Thus, any reduction in value may be justified.
The second is what I like to call the ‘high-yield illusion’. In the past I’ve bought companies because of the high yield on offer, only to find out many of them couldn’t afford what was being paid out.
The way I avoid this now is by by ensuring any high yields are financially sustainable with the companies having good long-term prospects. The key for me is to make sure that the dividend is well covered by a firm’s retained earnings.
I believe the FTSE 100 shares I’ve highlighted all broadly fit this profile.
Bargain FTSE 100 stocks
Market turmoil has often turned out to be a positive for me for several reasons. I’ve been able to snap up quality stocks at cheap prices in such an environment. I’ve also seen many of my higher-risk stock picks benefit from the greater volatility the turmoil brings.
In my opinion, the latest market sell-off has created a buying opportunity for some high quality, and consistent dividend payers.
I intend to buy shares in as many high-yielding bargains as I can. The FTSE 100 stocks I mentioned here are currently at the top of my watchlist.
The post 3 bargain FTSE 100 stocks with high dividends I’d buy in October appeared first on The Motley Fool UK.
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Henry Adefope has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may 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.