Stock market corrections and crashes provide an opportunity for savvy investors to supercharge their returns. Right now, I’m looking for cheap UK shares to buy to make a large dividend income that I can then reinvest for even greater profits.
We haven’t yet entered correction or crash territory. However, losses have been severe and many top-quality stocks have been oversold during the panic.
Here are three of my favourite fallers that I’m hoping to buy when I next have cash to invest:
Stock
Forward P/E ratio
Forward dividend yield
Bank of Georgia Group (LSE:BGEO)
3.5 times
7.1%
ITV (LSE:ITV)
9.3 times
6.5%
HSBC Holdings (LSE:HSBA)
6.1 times
9.3%
As you can see, each trades on a forward price-to-earnings (P/E) ratio of below 10 times. They also carry a huge dividend yield (each of which is significantly above the 3.6% average for FTSE 100 stocks).
If I invested £20,000 equally across these stocks today, I’d make a dividend income of £1,520 this year, if broker forecasts prove accurate. I’m confident, too, that these companies will steadily grow their dividends over time as well.
Here’s why I’d buy them right now.
Bank of Georgia
Bank of Georgia’s been one of the FTSE 250‘s biggest casualties in recent months. It’s fallen as political turbulence in Georgia has escalated. And in more recent days, it — like the broader banking sector — has dropped as worries over a possible US and global recession have risen.
But I think it’s worth a serious look at current prices. Its P/E ratio is one of the lowest of any banks on the London stock market.
Bank of Georgia’s long-term outlook at the moment remains highly encouraging. Profits here are soaring (up 23% on an adjusted basis in quarter one) as Georgia’s booming economy drives financial services demand. Low product penetration leaves plenty of scope for further breakneck growth.
ITV
ITV is also highly sensitive to economic conditions. As a commercial televison broadcaster, the advertising revenues it receives could decline if companies slash marketing-related spending. This has been a problem in recent years.
Yet there’s also a lot to be enthusiastic about here. It’s invested huge amounts in its ITVX streaming platform to great success. And it has scope to continue growing viewer figures as watching habits change (monthly active user numbers and digital revenues here both leapt 17% in the first half).
ITVX could receive a boost in a fresh economic downturn, too, if cash-strapped people cut their Netflix and other paid subscriptions in favour of ITV’s free content.
HSBC
Like Bank of Georgia, HSBC could face a double whammy of weak loan growth and rising impairments if economic conditions worsen. It is especially vulnerable to the ongoing challenges affecting China’s economy.
Yet the FTSE 100 bank — which enjoyed record profits in the first half — still look in great shape for the long haul. Its focus on Asian emerging markets gives it scope to outperform UK-focused shares like Lloyds and NatWest.
HSBC is investing heavily in areas like wealth management to maximise this opportunity, too. This is thanks in part to its strong CET1 capital ratio, which rose to 15% in the first half. A strong balance sheet is also helping it buy back another $3bn of its shares and underpins those excellent dividend forecasts.
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Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings, ITV, 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.
