The FTSE 100 and FTSE 250 indexes have risen strongly over the last year — they’re up 19% and 10% currently — but many top dividend stocks remain dirt cheap. It’s led me to ask: is this an excellent buying opportunity for passive income investors?
Both Safestore (LSE:SAFE) and Aviva (LSE:AV.) shares have caught my attention at the start of June. Why are they both trading at bargain-basement levels?
Safe as houses?
Safestore is one of the most reliable FTSE 250 income shares out there. It’s raised its annual dividends for 16 straight years, and City analysts are expecting another rise in financial 2026. This leaves a 5% forward dividend yield.
That dividend resilience reflects the stock’s classification as a real estate investment trust (REIT). It has to pay at least 90% of yearly rental earnings out in dividends. So why is Safestore struggling to attract attention from value investors? Today its forward price-to-earnings (P/E) ratio sits at 8.9 times.
It’s true the outlook for REITs has changed since the start of the Iran war. The market had been expecting interest rate cuts that could boost asset values and reduce these firms’ borrowing costs. Now the Bank of England is tipped to hike rates in response to rising inflation.
There’s another more specific threat to Safestore, too. It doesn’t operate in a defensive sector like food retail or healthcare. As a consequence, it could see revenues fall if broader demand for self-storage spaces drops.
However, I still believe Safestore shares are changing hands far too cheaply today. And especially considering how robust trading has remained despite previous pressures. Latest financials showed like-for-like sales up 4.2% in the three months to January, while closing occupancy increased 1% to 77.8%.
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A 6.7% dividend opportunity?
Like Safestore, Aviva shares also look undervalued based on expected earnings. Forget about its unspectacular forward P/E ratio of 12.1. A sub-1 price-to-earnings growth (PEG) ratio suggests the FTSE 100 company offers outstanding bang for the buck.
So what’s the story here? Aviva provides a range of financial services, and is a particularly large player in general insurance. The problem is it also generates substantial profits (more than half, in fact) from more cyclical segments like asset management and life insurance.
But again, recent trading suggests the market could be overstating the threat of the Iran war to company profits. Last month, Aviva said it’s on track to grow operating earnings 11% on an annualised basis between 2025 and 2028. In my view, its market leading positions leave it in great shape to capitalise on demographic trends, helping it to grow earnings.
Things can change, of course. But even if profits do experience a temporary blip, Aviva’s strong balance sheet means I’m confident it can raise dividends for a seventh straight year in 2026. Its forward dividend yield is currently an enormous 6.7%.
Should you invest £5,000 in Aviva Plc right now?
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Royston Wild owns shares in Aviva.
