Many popular income shares in the UK haven’t performed that well over the past 10 years. Both Lloyds and Barclays have seen their share prices fall by more than 40%. Meanwhile, BT has lost over two-thirds of its market value in a decade.
Partly this is because the FTSE 100 has fallen out of favour with investors in recent years, and this has negatively affected sentiment towards a lot of other smaller UK shares.
However, this has now created lucrative opportunities to bag high-yield passive income.
The economy hasn’t crumbled
At the start of 2023, many economists were predicting that the UK was heading for one of the worst recessions it had ever faced. And the housing market was going to crash, too, obviously.
Therefore, it may have seemed perfectly rational to avoid buying UK stocks in 2023. Why take the risk when I can bag a 5%+ return through a savings account?
However, while in no way firing on all cylinders, the UK economy has displayed remarkable resilience since the dark pandemic days of 2020. There has been no severe and long-lasting recession.
Likewise, the property market has held up pretty well, I’d say. Of course, this isn’t to say a recession or another housing market wobble won’t happen in 2024. But I wouldn’t let macroeconomic data and doomsday headlines stop me from investing for the future.
Being paid to wait
Looking back, I received dividend payments from every single stock in my income portfolio last year. And most even increased their payouts from the year before, which is a sign of confidence in the future.
Admittedly, my renewable energy and mining investments didn’t have a great 2023 on a share price basis. But I’m not intending to sell these investments for many years, so this doesn’t worry me.
I’ll keep taking the 5%-8% dividend yields while I wait for a potential share price recovery. As I see it, I’m being paid high-yield income to be patient.
Investing globally at a discount
It’s important to remember that most of the biggest UK-listed firms get the bulk of their income from overseas. Indeed, for the FTSE 100, around 80% of revenue comes from abroad.
So, a UK recession wouldn’t really impact the cash flows and dividends of these companies too much.
Plus, as things stand, I’m essentially able to invest internationally at a huge discount. The table below shows how cheap the FTSE 100 really is.
Index
Price-to-earnings (P/E) ratio
S&P 500
21
World index
19
FTSE 100
10
Now, I should point out that some US-listed firms, especially technology ones, are expected to grow their earnings at a higher rate over Footsie companies. So a premium is probably warranted, but a 50%+ discount on a P/E multiple basis seems excessive to me.
A rare chance
In fact, the last time UK shares were this cheap was during the financial crisis well over a decade ago. As a result, dividend yields are incredibly high by historical standards.
Ultimately, this means investors like myself can buy bargain UK shares today to aim for really attractive passive income in the years ahead as firms look to grow their earnings.
This could turbocharge my wealth, especially as and when share prices start heading higher too.
The post FTSE income shares: a once-in-a-decade chance to get rich? appeared first on The Motley Fool UK.
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Ben McPoland has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. 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.
