The FTSE 100 has made a strong move forward, jumping nearly 4% in a week. Since the second week of October, the Footsie has gone up a whopping 7.4%. This strong month of trading is the trend reversal I have been looking for before looking for bargains. Right now, some blue-chip FTSE 100 shares look very cheap and ready for liftoff. Here are two names from my watchlist that look ripe for picking before 2023. 

Dirt-cheap energy share

SSE (LSE:SSE) is an energy company that operates wind farms and hydroelectricity units. It has become a key part of the UK’s push to make renewable energy more affordable and accessible. 

The energy industry has undergone a drastic shift over the last two years. Oil prices have remained close to the $100-mark throughout 2022. This has increased the demand for renewables and I am keen on investing in an FTSE 100 green energy share.

SSE has been growing its wind energy reserves recently. In the first quarter (Q1) of 2022, the company was 5% ahead of energy generation targets. Compared to Q1 2021, output increased by 24% year on year.

SSE also expects adjusted earnings per share of at least 120p this year factoring in expenditures and investments in excess of £2.5bn. This shows me that the company is healthy financially despite sizable acquisitions.

SSE shares are currently trading at 1,592p at a price-to-earnings (P/E) ratio of just 6.6 times. The FTSE 100 stock also comes with a sizable dividend yield of 5.3% making it a growth option for my portfolio that also offers a lot of value. 

The energy sector is expected to undergo a major shake-up given skyrocketing profits. The recently announced de-facto windfall tax on renewables will cut earnings significantly.  But this is not a permanent move. 

While revenue will drop momentarily, the industry will continue to gain prominence. I think this is the best period for me to invest in renewable energy in the UK. Once the taxes are lifted, earnings will grow, attracting more investor interest. And I am looking to capitalise before this happens. 

Telecom giant with growth potential

Airtel Africa (LSE:AAF) shares have been on my watchlist for a while. Owned by Indian giant Bharati Airtel, this FTSE 100 company offers mobile connectivity and digital payment software in 14 major countries across Africa. 

In fact, Africa is a global leader in digital payments and Airtel Money offers comprehensive digital fund transfer solutions, empowering low-income communities. The company is growing its offering by securing more 4G licences and is well positioned to be a 5G giant in the continent. 

Despite a 20% jump in earnings this year, its shares are down 13% this year. It is trading at a P/E ratio of 8.1 times with a dividend yield of 3.6%. To put this context, Airtel Africa shares are up over 240% since the first pandemic crash.

Expansion and the switch to 5G will prove to be cash-intensive. This could drop earnings over the coming months and years depending on when frequency bands are offered to private firms. 

However, I am bullish on the firm’s tested business model and steady recent revenue growth. It currently looks attractive but I am waiting to see price action towards the end of the year before making an investment. 

The post FTSE 100 recovery: 2 cheap shares I’d buy on their way up  appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa 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.

The FTSE 100 is falling fast and is at its lowest level in over 15 months. However, share buybacks by top Footsie companies are at all-time highs. Several industries are seeing record profits and will come out of this slump in a better financial position. 

I see this as the perfect opportunity to load up on some quality stock at great prices. And one firm looks like a good value pick to me.

DS Smith (LSE:SMDS) shares are currently trading at 267p. They have a price-to-earnings (P/E) ratio of 13.1 times and offer a dividend yield of 5.6%. This looks like a great bargain to me, and the company’s latest financial update has made investors very happy.

DS Smith shares could take off

Dividends stocks are under the spotlight right now. Chancellor Kwasi Kwarteng’s latest plans will see the tax on dividends lowered by 1.25%. This comes after share buybacks by UK firms hit a record of £16.2bn in the second quarter (Q2) of 2022. 

This shows that despite the turbulence in the market right now, investors who buy and hold quality shares will be rewarded. Returns from share price movements are low right now. But if I make smart decisions today and grow my passive income portfolio, I could benefit from higher payouts for decades.

This is where DS Smith shares look like a good option to me. The global packaging firm released a strong trading update this week. For the first half (H1) of 2022 (ended 31 October) operating profits are expected to be at least £400m, beating all previous estimates. To put this in perspective, total operating profits in FY2021 were £616m. 

This is great news for DH Smith’s dividend moving forward. The already sizeable yield could grow in the coming months if H2 performance meets expectations. Current full-year earnings projections will put year-on-year earnings growth at 10.9%.

After the update was released, DS Smith shares jumped over 12% in a day. But it is still trading 42% below its post-pandemic highs of 461p set in September 2021.

Concerns and verdict

With the FTSE 100 struggling to find stability, it is hard to say if this update alone could trigger a share price rise. In fact, the company posted decent results in line with expectations last year. However, its share price continued to fall. DS Smith shares are down over 30% in the last 12 months and 32% in 2022. 

Also, paper prices have remained high after the pandemic and are projected to rise over 2.5% annually for the next five years. DS Smith already has razor-thin margins. The e-commerce surge over the last 24 months has triggered a huge demand for packaging materials like cardboard. And rising paper pulp prices could put a strain on future revenue. 

However, I am optimistic that DS Smith can hit its new targets this year, which would increase investor interest. Given its size and global presence, I think the firm is well-placed to navigate rising raw material costs. I think DS Smith could offer a good mix of value and growth for my portfolio, which is why I am willing to invest if signs of recovery grow stronger. 

The post Are DS Smith shares the FTSE 100’s best bargain right now?  appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. 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.

But it isn’t all gloomy skies. The Office of National Statistics found that the UK economy grew by 0.2% in the second quarter of 2022, dispelling fears of a recession. 

I think quality FTSE 100 shares are still the best option for my growth portfolio. Looking at the charts, top UK shares have been rather elastic, rising strongly after recent crashes. While there is no guarantee that this will happen again, investing during mini crashes has historically been a great way to buy/add growth stocks. This is why I think it is the perfect time to invest in two FTSE 100 shares from my watchlist. 

Pandemic superstars 

Croda International (LSE:CRDA) and Ashtead Group (LSE:AHT) are two companies that I have been tracking closely since the pandemic. Between March 2020 and November 2021, these two FTSE 100 shares went up 152% and 342% respectively.

But since then, market corrections have put these top performers in bargain territory.

Industrial equipment rental firm Ashtead is down 34% since its all-time high and is currently trading at 4,000p, at a price-to-earnings (P/E) ratio of 14.6 times.

Across the financial year (FY) 2022, a period when most businesses struggled with inflation, Ashtead’s revenue jumped nearly 20% to £7.96bn, while net income grew of 36% to £1.25bn. In fact, Ashtead’s revenue has increased every year since 2018.

The company has a strong presence in the US, UK, and Canada, trading under the name Sunbelt Rentals. Its industry was recently boosted by US President Joe Biden’s public works stimulus bill. As a result, rental revenue from the US jumped 29% in the first quarter of FY2023. 

Similarly, chemical giant Croda has fallen 38% since its all-time high in November 2021. It is currently trading at 6,370p at a P/E ratio of 12.5 times. 

In FY2021 (ended 31 December 2021), Croda’s revenue jumped 35.9% to £1.89bn with net income growth of 59% to £320.8m. The company has also seen significant growth across the first half (H1) of 2022. Sales rose 21% compared to the same period in 2021. 

The British manufacturer is currently transitioning into a life sciences business, with a focus on cosmetics and pharmaceuticals. The board expects this to streamline the business with stronger margins and higher returns. 

Concerns and verdict

Both businesses have a global presence and the falling pound could affect profits moving forward. Given the volatility in global markets, this could cause these FTSE 100 shares to fall further. 

Also, a recession in the US could halt development projects, causing Ashtead’s sales to drop. Croda is still seeing proceeds from its Covid test kit chemicals, which is expected to slow down completely moving forward.

Despite these concerns, I think both businesses are well placed to navigate choppy waters. These businesses have demonstrated significant growth in recent times and have established strong markets and steady sales. Given the balance sheets, these FTSE 100 shares look dirt-cheap to me at current levels.

The post 2 beaten-down FTSE 100 shares I’d buy before the market recovers appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International. 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.

The renewable energy lobby has witnessed a massive surge over the last two years. World leaders are finally acknowledging the need to phase out fossil fuels. Latest projections show that over £850bn will be funnelled into the sector this decade via grants and investments, a huge boost for renewable energy firms.

The sector is red hot right now, with many top renewable energy shares across the world gaining momentum even as indexes fall. And I think I have zeroed in on an FTSE 100 name that looks like a winner for my long-term growth portfolio.

Riding the wave

SSE (LSE:SSE) shares have been outperforming the FTSE 100 index for some time now. Since the pandemic crash in March 2020, the Footsie has gone up 36.8% while the SSE share price is up 62%. This is largely due to the EU and the UK focussing on stronger collaborative renewable energy programs. And this revolution is led by wind and hydroelectricity, given the high potential for both in the region. And SSE is a market leader in both. 

The region has lofty ambitions when it comes to fighting climate change. The UK government recently detailed its Energy Security Strategy and the focus is on “homegrown power generation,” which includes a mix with 95% low-carbon power by 2030. This is great news for renewable energy production and distribution companies like SSE.

Is this FTSE 100 share the best growth option for me?

SSE Renewables focuses on onshore and offshore wind and hydroelectric power. SSE already owns nearly 2GW (gigawatt) of operational onshore wind capacity with over 1GW under development. The company also holds hydroelectricity resources capable of generating 1,459MW and an offshore wind portfolio estimated at 579MW across UK waters.

SSE wants to treble its renewable energy by 2030 to 50TWh a year. This includes a fully-funded £12.5bn investment by 2026, that will help ramp up clean power generation. The board also plans to power the increasing demand for EVs (electric vehicles) by supplying 20GW to charging ports across the country. 

In financial year (FY) 2022, the FTSE 100 company recorded total revenue of £8.6bn, up 26% from FY 2021. The board expects increased free-cash generation until 2026 and plans on growing its dividend by 5% per annum to FY 2026. 

These figures point to a business with a large market share operating in a healthy sector. And I consider them strong indicators of future growth. But there are some risks to consider as well. Regulations and currency fluctuations can impact SSE’s operations across UK, Scotland, and Ireland.  Also, analysts expect crude oil price fluctuations to settle in 2023. This could slow down the renewables push, impacting future profits. 

Governmental grants and regulations play a major role in energy prices. And the UK, which is witnessing financial and political turmoil, could tighten current renewable energy budgets if this inflationary period extends beyond 2022. This could increase taxes, stall development projects, and impact SSE’s performance. 

But this FTSE 100 stock looks like a robust renewable energy option for my portfolio right now. Given its strong presence in the UK, plans underway, and predicted jumps in revenue, I could be tempted to make a £10,000 investment if the current share price performance continues. 

The post Renewable energy boom: 1 top FTSE 100 share I’d buy appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

In recent weeks I have been looking for high-dividend-yield FTSE 100 shares to add to my portfolio. I think it is important for my investments to offer a strong passive income that is independent of short-term share price fluctuations. Here are two UK shares that I think offer both a stable dividend yield and a positive outlook to merit a long-term position in my portfolio. 

A robust energy giant

Scotland-based energy firm SSE (LSE:SSE) is a leader in the UK green energy shift. Alongside wind farms, It has plans to triple renewable energy output with £12.5bn in new investments. The management team has positioned the company well to profit from the transition to clean energy.

Due to the UK’s reliance on the services SSE provides, it is reasonably placed well for future uncertainty. If its costs rise as a result of inflation or supply chain issues, SSE can increase consumer prices up to a point, knowing it should see no large fall in demand. This makes it slightly more resistant to inflation risks and supply chain uncertainty than FTSE 100 peers and should help maintain a stable profit margin.

While the 5% dividend yield is not as high as some FTSE 100 outliers, it is well above the index average of 3.5%. I think this could remain fairly consistent over the next few years due to SSE’s ability to maintain stable profits and that gives me confidence around a long-term investment.

However, the company does have a large debt load that could become more expensive to finance if interest rates continue rising. SSE is also seeing pressure from activist hedge fund Elliott Management that’s pushing for a speedy transition to net zero energy production. The hedge fund could even encourage the sacrifice of future dividends to finance the shift. Despite these risks, I am still a supporter of SSE and I am considering opening a position.

A cheap housebuilder with a 10% dividend yield!

I’ve talked about the opportunities housebuilders offer in recent months. Homes are in short supply in the UK and the government has ongoing targets to build more. Persimmon (LSE:PSN) is the second-largest UK housebuilder after Barratt Developments and it builds over 13,000 houses a year. With a 10.8% dividend yield, it is one of the highest-yielding FTSE 100 shares.

The share price has struggled over the last year, falling 31%. There is a consensus that the increasing Bank of England base rate would reduce mortgage affordability and lower housing demand. However, the loosening of mortgage affordability tests and the existing high demand for housing still makes me confident in the future of housebuilders.

Persimmon currently has no debt and trades on a low price-to-earnings (P/E) ratio of 8.8, which signals more positivity to me. This low P/E ratio, alongside the fall in share price in the recent year, suggests to me that the market is undervaluing this UK share. However, there are still risks to consider. Supply chain disruptions and inflation could increase the costs of building materials and squeeze profit margins in the short term.

Although, the incredible dividend yield and robust business conditions outweigh the risks for me. And they make this cheap FTSE 100 share another one I am considering adding to my portfolio with my next chunk of savings.

The post High dividend yields! 2 FTSE 100 shares to buy and hold until 2032 appeared first on The Twelfth Magpie.

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Finlay Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Inflation hit a new high of 6.2% in February. Vodafone (LSE: VOD) has a 6% dividend yield and is outperforming the wider UK market index with an 8% year-to-date gain. Today, I will be assessing whether this FTSE 100 stock has a place in my portfolio.

Paying dividends

High-dividend paying companies are infamous for compensating for their underperformance with large payouts. This is often seen in industries that have high levels of uncertainty or headwinds, such as metal commodities and tobacco.

However, Vodafone has managed to buck the trend so far this year. The British telecommunications company pays one of the UK’s highest dividends. In fact, it is among the top 25% of dividend payers in the UK. The payout rounds up to approximately €0.09 or £0.07 per share.

Furthermore, the Vodafone share price has also outperformed the FTSE 100 by a rather solid 7% so far this year. The surge in its share price came after its better-than-expected Q3 results. For that reason, Vodafone does look like a promising passive income stock, at least for the short term.

Dial up growth

Nonetheless, as a long-term investor, I have a strong interest in a company’s future prospects. I always look for companies that can sustain a continued level of earnings growth, even if they don’t pay dividends.

Although revenue growth from Vodafone’s most recent quarterly trading update was positive, a 3.1% annual growth rate does not entice me. With that being said, there are also positives. Most notably, revenue growth was impressive in Egypt (18.5%) and Turkey (22%). However, these two countries together only contribute 9% of the group’s total service revenue. Also, Italy (-1.3%) and Spain (-1.6%), which each contribute 20% of total service revenue, saw declines.

While I have no doubt that Vodafone has a path to recovery in a post-pandemic world, just how much it can recover by remains a question. The company’s annual earnings have been extremely volatile, sliding in and out of profitability. Revenue has been on a decline since 2015. As such, I think Vodafone’s growth prospects are limited, and so are its future dividends.

Top up your balance

Vodafone’s dividend of 6% is not well covered by its earnings. This all brings me to raise the most worrying factor about Vodafone — its balance sheet. With an extremely high level of debt and declining cash levels, the British telecommunications company does not seem to have a bright future ahead. Moreover, with interest rates continuing to rise, Vodafone is going to find it difficult to pay off all that debt without much growth. In addition, its dividend payments have fallen over the past 10 years.

Even if I was a dividend investor, I would be skeptical of receiving a healthy level of dividend payments from Vodafone for the medium to long term. I am staying clear of this FTSE 100 stock and won’t be buying it for my portfolio anytime soon.

The post This FTSE 100 stock could earn me passive income with a 6% dividend yield appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Vodafone. 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.

Tesco

Supermarket titan Tesco (LSE: TSCO) reveals its latest set of full-year numbers on 13 April. The shares are down 6% so far this year. That’s hardly great. However, it’s clearly far better than the performance of other members of the FTSE 100. 

Regardless of what happens next month, I continue to rate Tesco highly as a core holding if I were looking to build a defensive portfolio with an income bent. The shares have a forecast yield of 3.9% — slightly higher than that of the FTSE 100 as a whole. 

Naturally, the supermarket space isn’t going to become any less competitive. The rise in the cost of living could push more shoppers in the direction of German discounters Aldi and Lidl. Global food supply disruption due to the Russia/Ukraine conflict is another potential headwind.

However, with 20 million households signed up to its Clubcard loyalty scheme helping to keep the checkouts ringing and a huge market share, this is easily the least risky listed firm in the space, in my opinion. I think existing holders can sleep easily. 

Rio Tinto

Mining giant Rio Tinto (LSE: RIO) was one of my five stocks to buy for 2022. Since the beginning of the year, its share price has climbed 18%. Pleasing as that is, I wonder if there might be more gains ahead. The company is down to release an operations review for the first quarter on 19 April.

Even if Rio’s news doesn’t lift the share price further, I still reckon this is a great stock to buy for two reasons. First, it’s a dividend machine. Right now, the stock has a forecast yield of 10%! Second, the switch to renewable energy sources, while gradual, is unstoppable. That means huge demand for the sort of metals that the top-tier company digs up. 

As things stand, Rio’s shares trade at seven times earnings, which is average for its sector but cheap relative to the rest of the market. Then again, investors need to remember just how volatile commodity prices can be. So while I think that Rio remains a good stock to hold, I’d always make sure I was fully diversified across other sectors before pulling the trigger.

Smith & Nephew

It might not grab the headlines compared to other FTSE 100 stocks but I continue to be interested in acquiring a slice of medical devices firm Smith & Nephew (LSE: SN).

As a result of the Covid-19 pandemic, a lot of elective surgery was postponed. This inevitably impacted trading at the company, sending the share price firmly lower. Now that Covid-19 is no longer grabbing the headlines and restrictions have been lifted, I think a recovery could be on the cards. 

The elephant in the room for me right now is the valuation. A P/E of 19 isn’t cheap, although this should fall as business bounces back. However, there’s nothing to say the stock won’t fall lower between now and then on general market concerns or any potential coronavirus comeback.

I’ll be reading the Q1 trading update — due to land on 28 April — with great interest.

The post 3 FTSE 100 stocks I’ll be watching in April appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Smith & Nephew and Tesco. 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.

Opportunity cost

One important question to ask is just what we mean by ‘recover’? This is not to disappear down some philosophical rabbit hole. However, if I’m to risk my capital on an individual company like this, surely it helps to have a rough idea about what I’m looking to achieve?

The problem with this approach, however, is that contemplating where a company’s stock may be going in the very near term is ultimately fruitless (and very un-Foolish). It simply isn’t possible to take into account the impact of so many potential variables. So, I’m looking at this in a different way.

For me, speculating on a recovery in the Rolls-Royce share price is actually less about what value it will hit and when. It’s whether the opportunity cost — what I potentially give up by investing in this stock over others — is worth it. 

Multiple headwinds

It’s clear to me that the company still faces an unenviable number of hurdles in the road ahead. Covid-19 hasn’t yet left us, even though international travel has resumed. Back down on the ground, net debt has ballooned. That’s not ideal when you consider how capital intensive this business is.

The sudden departure of CEO Warren East is another thing the battered firm could do without. While generally managing to succeed in steadying the ship, the arrival of the pandemic has arguably impacted his ability to turn the company around. What this development does is create is more uncertainty, which could keep the Rolls-Royce share price down. 

All this before the impact of the awful conflict in Ukraine on UK share prices generally is even considered. Whether investors are prepared or not, Rolls-Royce could do all the right things and still lose value if the situation escalates further. 

Buy the dip?

Perhaps I’m being overly negative. With global travel getting back to some kind of normality, demand for Rolls-Royce engines is surely only going one way. There are also growth opportunities relating to the rise of  nuclear energy that could prove very lucrative in time.

On the other hand, buying a slice of Rolls-Royce now would be to go completely against my investing approach of only buying the best stocks going. Based on measures of ‘quality’ — such as operating margins and returns on capital employed — the FTSE 100 juggernaut just isn’t an attractive proposition. 

On top of all this, I’m being asked to pay 21 times forecast earnings for the stock. That’s steep, even if the valuation will likely come down as earnings (hopefully) bounce back. In the meantime, I’m not receiving any kind of compensation for my patience by way of dividends. This is in sharp contrast to many other stocks on the UK market.

Still not for me

I don’t know when the Rolls-Royce share price will ‘recover’. However, I suspect the journey back will not be without a few bumps that other FTSE 100 stocks can probably avoid.

Good luck to all those already holding but I’m still wary of taking a position here. 

The post The Rolls-Royce share price is now below £1. Time to buy? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

A cheap stock with a sky-high dividend can be enormously enticing. This is especially the case when markets are in a funk as they are now. Fortunately, I think I’ve found a great example of a cheap FTSE 100 dividend share that’s worth buying today.

Monster dividend yield

Based on the current consensus among analysts, insurer and asset manager M&G (LSE: MNG) offers a stonking forecast dividend yield of 8.9% for FY22. That’s one of the biggest in the FTSE 100. It’s also well over double the yield generated by the index as a whole.

Of course, the question that any dividend hunter has to ask is how sustainable the bi-annual payments actually are. On this front, I think investors can sleep safely (for now). 

The FTSE 100 member’s recent set of full-year results were certainly well received. Although adjusted operating profit dipped from £788m to £721m, the firm was able to confirm that it hit all its commitments since demerging from giant Prudential.

These included total capital generation of £2.8bn in two years, “well ahead” of the £2.2bn target set for the end of 2022. On top of this, the company also hit its costs savings target of £145m one year ahead of schedule. 

As a result of this, M&G announced it would be returning £500m back to holders via a share buyback. No wonder the share price jumped on the day. 

Decent outlook

I think this form could continue in 2022. Through a combination of acquisitions and product launches, the £5.5bn-cap is expanding its services in the UK and Europe. A resolution to the conflict in Ukraine and a full post-pandemic recovery could also see more savers’ money finding its way to the company.

Looking further ahead, M&G stands to benefit from an ageing population that’s realising how insufficient the State Pension might be for their desired lifestyle on retirement.

Risks to consider

Naturally, I’d be a complete fool (rather than a Fool) if I didn’t consider the potential risks here.

Unsurprisingly, there’s no guarantee that dividends will always be paid. The global pandemic, while a once-in-a-century event, showed us that the income stream is usually one of the first things to be sacrificed in an effort to shore up cash. As far as M&G is concerned, it’s worth mentioning that profit is expected to cover the FY22 payout just 1.1 times. That’s already rather low.

Away from the dividends, I would also need to be comfortable knowing that M&G’s share price performance will likely be heavily correlated with the health of the UK economy. That’s not necessarily an issue for long-term investors like myself. However, knowing that the stock is still 6% below where it stood when M&G was listed in 2019 is a sober reminder that my capital can fall as well as rise in value.

Cheap FTSE 100 stock

Of course, investors might argue that a lot of risks are already in the price. M&G shares change hands at just 10 times forecast earnings. That looks pretty reasonable to me. Yes, there are similar companies trading on even cheaper valuations in the UK market. However, the dividend stream isn’t quite so big.

Overall, I consider this a good candidate if I was looking to build a diversified, income-focused portfolio.  

The post 8.9% yield! 1 cheap FTSE 100 dividend share to buy today appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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.

Cheap FTSE 100 penny stock

Broadcaster ITV (LSE: ITV) has seen its market-cap tumble almost 30% year-to-date. Based purely on this, investors might suspect that trading has been awful. However, this simply isn’t the case. The £3.4bn-cap recently revealed a 48% jump in pre-tax profit and 24% rise in total external revenue growth of 24% in 2021. On top of this, the company kept its word and reinstated the dividend.

So what’s got investors flustered? It all seems down to the company’s plan to “supercharge” its streaming services and launch ITVX. As interesting a development as this is, it will require an awful lot of cash to get going. In addition to the cost, some investors are clearly sceptical of ITV’s ability to challenge established giants such as Netflix or Amazon. 

Valid concerns as these are, I believe the market is probably being too pessimistic. ITV still boasts an impressive list of popular productions. Debt is also coming down and a total dividend of 5.71p per share has been estimated for FY22. That’s a chunky yield of 6.81%, easily covered by profit. All this for a penny stock now trading at just six times earnings.

So as bad as the last few weeks have been, I’d be comfortable buying a slice of ITV today, just as I was before this month’s update. 

50% down! 

Another penny stock I’d consider is dotDigital (LSE: DOTD). It provides solutions to other businesses for automating their marketing campaigns across social media and email.

Despite the clear demand for what it does, holders have endured a torrid time of late. The shares have halved in value since the beginning of 2022. What’s brought on this capitulation?

Well, investors’ growing aversion to growth stocks in recent months can’t have helped. Nor can more recent news that full-year revenue growth will now be lower than expected “during the current and future financial years“.

Nonetheless, dotDigital looks like a fundamentally good business to me and possesses many of the qualities I look for. Margins are pretty high. Returns on capital — essentially, what a company gets back for the money it puts in — have been consistently decent too.

Recurring revenue also now stands at 94%, giving the company good visibility on trading. If CEO Milan Patel is right and the “dramatic acceleration” in the adoption of digital marketing is “set to endure,” DOTD might prove a great buy at these levels.

Risks to consider

Cautiously bullish though I am, there’s nothing to say things won’t get worse before they get better for either penny stock. The awful conflict in Eastern Europe may continue impacting general market sentiment, dragging the share prices of both companies lower.

dotDigital might be particularly at risk here. A forecast P/E of 23 still looks punchy considering the amount of competition it faces. ITV shares could also sink lower if, for example, advertising revenue dips again. 

However, the time to buy shares is when the expectations are (temporarily) low. I think that might be the case here. With a bit of patience, I reckon these penny stocks can still deliver. 

The post This cheap FTSE 100 share isn’t the only penny stock I’d consider buying appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and dotDigital Group. 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.