Now is a good time to be a “value” investor. After years of underperformance, value stocks appear to be making a strong comeback.
Here I will highlight two cheap UK value stocks that pay dividends. Given their low valuations and attractive yields, I would be comfortable buying these two stocks for my portfolio today.
Very cheap value stocks
Let’s start with FTSE100 business BAE systems (LSE: BA), which is Europe’s largest defense company. It currently has a forward-looking price-to-earnings (P/E) ratio of 13, well below the median FTSE 100 P/E ratio of 16.
BAE’s 2021 full-year results, released last week, showed the company is doing quite well. For the year, sales rose 5% to £21.3 billion. At the same time, underlying earnings per share increased by 12% at constant exchange rates to 47.8 pence.
Buoyed by these results, the group declared a final dividend of 15.2 pence per share, bringing the total for 2021 to 25.1 pence per share. This represents a 6% increase in the declared dividend for 2020 and a yield of around 4% at the current share price.
Looking ahead, management was optimistic about the future, saying it expects to continue to generate growth.
“Our diversified portfolio, along with our focus on program execution, cash generation and efficiency, helps us navigate a challenging operating environment, which means we are well positioned for sustained revenue growth. business and margin in the years to come.said CEO Charles Woodburn.
This leads me to believe that this stock of value could climb from its current level.
A risk here is that defense budgets could be cut, impacting the group’s revenues and profits. However, given the high level of geopolitical tension globally, I think this is unlikely in the near term.
Big dividends offered
Another value stock that I like the look of right now is Schröders (LSE: CRPS). It is a leading asset manager that operates in the UK, Europe, the US, Asia, the Middle East and Africa, and manages around £700 billion for its clients. Its non-voting shares are currently trading at about eight times expected earnings for this year. It’s market value, in my opinion.
There are several reasons why I like Schroders. The first is that the group is big on ESG (environmental, social and governance). Last year, it announced that it had integrated ESG factors into decision-making for all investments managed by the firm. This positions the group well for the future.
Another is that the group has turned to private assets. I see this as a great decision as I expect the demand for alternative investments to be high in the years to come, due to the fact that interest rates are so low.
Moreover, there is a very good dividend yield here. Currently, the yield is around 6.5%.
Now, it should be pointed out that the asset management industry is very competitive. Currently, Schroders faces intense competition from iShares, Vanguard and Fidelity. This adds risk. A stock market crash is another risk to consider. This could impact the group’s income.
However, with the stock currently trading at such a low valuation, I think the overall risk/reward proposition here is attractive.
Post 2 cheap value stocks with big dividends to buy in March appeared first on The Motley Fool UK.
Edward Sheldon has no position in any of the stocks mentioned. The Motley Fool UK recommended Schroders (non-voting). The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.
Motley Fool United Kingdom 2022