The London stock market remains a great place to pick up dirt-cheap income stocks. Plenty of UK shares have enjoyed brilliant gains over the last 12 months. But years of underperformance mean many quality dividend shares remain firmly in bargain-basement territory.
Take Record (LSE:REC), Sabre Insurance (LSE:SBRE), and NewRiver REIT (LSE:NRR). These top dividend shares don’t just offer yields around 9% at today’s prices. They also offer excellent value based on predicted growth, with rock-bottom price-to-earnings (P/E) ratios.
Here’s why I’m considering buying them for my Stocks and Shares ISA in May.
Record
Record offers asset and currency management services to institutional investors. This offers brilliant advantages from a dividend perspective. Its capital requirements are low, allowing it to generate tonnes of free cash it can distribute to shareholders.
What’s more, the pension funds and financial institutions that typically make up its client base deliver recurring revenues. This visibility gives the firm the means and the confidence to pay consistently large dividends. Profits are vulnerable during economic downturns, however, though Record’s robust balance sheet provides some protection for dividends.
The P/E ratio here is 11 times, offering decent rather than spectacular value. But its price-to-earnings growth (PEG) really does deserve attention — at 0.7, it’s well inside bargain territory of below one.
With an 8.9% dividend yield too, I think the company offers brilliant bang for the buck.
Sabre Insurance
Sabre also enjoys steady cash flows it can use to pay large dividends. Here, the dividend yield is a huge 9%.
The business offers motor insurance policies to cars, taxis, and motorbikes. This is one of the most resilient parts of the insurance market. After all, drivers are legally required to have cover whatever the weather. A large slice of the regular premiums Sabre collects is then paid out in dividends.
So what are the drawbacks? Well as inflationary pressures rise, so could the insurer’s claim costs, putting the strain on earnings. But on balance, it could still be a more secure dividend share to consider in May as the economic outlook becomes more uncertain.
One final thing I like: the forward P/E is just 10.3 times.
NewRiver REIT
NewRiver REIT offers the largest yield of the three stocks we’ve discussed here, at 9.2%. It reflects in part sector rules, in which real estate investment trusts (REIT) receive tax breaks in exchange for paying 90% of rental profits out to shareholders.
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That doesn’t guarantee a large or growing dividend, though. After all, occupancy and rent collection issues can spring up during downturns that hit earnings. However, NewRiver’s portfolio helps reduce this threat. This includes blue-chip companies like Sainsbury’s, Boots, and Next, which are locked down on long-term contracts. The weighted average lease term here’s a shade over eight years.
With an ultra-low P/E ratio of 6.7, this is a very attractive income stock to consider, in my view.
