The IAG (LSE: IAG) share price has soared an impressive 35% in the last 12 months as the British Airways owner bounces back from lockdown. Brave investors who went bargain-hunting in those dark days have been nicely rewarded for taking a chance.
I wasn’t among them, sadly. I was tempted, but I’m not rich enough to buy every FTSE 100 stock that catches my eye.
I’ve now got more cash to hand after transferring three legacy pensions into a self-invested personal pension (SIPP), so is there still time to hop on board?
We’re flying again
Last year, IAG reversed two years of pandemic-driven losses in 2022 and it’s enjoyed a cracking start to 2023, turning last year’s €466m first-half loss into a €1.3bn profit. But I suspect the good news is now priced in with the stock trading at 33 times earnings.
But the share price recovery has stalled, with IAG shares stock slipping 4.75% over six months.
I’m also concerned by IAG’s net debt, which totalled €10.38bn (£12.12bn) in 2022. That’s down from €11.6bn in 2021, to be fair, but its still well above the group’s £8bn market-cap. The board may have to focus on paying that down before it can restore the dividend.
Investing is about choices and heaps of top FTSE 100 dividend stocks will pay me a handsome dividend. Many are a lot cheaper than IAG too. A couple that spring to mind are Barclays and corrugated packaging specialist Smurfit Kappa Group (LSE: SKG).
Barclays trades at a bargain valuation of just 4.7 times earnings. That’s stupidly cheap for a company that’s just posted a first-half profit of £4.5bn and announced another £750m share buyback. There’s a handsome dividend too, with a forecast yield of 6.2%, covered 3.7 times earnings.
Inevitably, there are risks. Rising interest rates may have helped Barclays widen net margins but also pose a threat as house prices wobble. Bad loan charges have almost trebled to £900m and there could be more pain to come.
I’m getting in early
Yet for a long-term buy-and-hold investor like me, today looks like a terrific entry point. Shore Capital has just said the UK banking sector looks undervalued, and I agree.
I don’t hold Barclays’ shares but I’d like to. I did buy Smurfit Kappa in the spring though, and now I’m keen to increase my stake. It’s not quite as cheap as Barclays but still looks good value, trading at 8.09 times earnings. The stock is forecast to yield 4.19% in 2023 with decent cover of 2.3 times earnings, rising to 4.48% in 2024.
Smurfit has been squeezed by higher paper and energy prices and falling e-commerce activity due to the cost-of-living crisis. Yet full-year 2022 revenues jumped 27% to €12.82bn with profit leaping 42% to €1.29bn.
Smurfit ended 2022 owing €2.99bn, but its net-debt-to-EBITDA ratio of 1.3x fell from 1.7x in 2021 and is now the lowest in the group’s history. Both the Barclays and Smurfit Kappa share prices may struggle if shares continue to slide, but I would back them to rebound strongly when sentiment recovers. By contrast, I think I’ve missed out on the IAG share price rebound.
