4 cheap shares I’d buy and hold in June!

Hand of person putting wood cube block with word VALUE on wooden table

As a value investor for 35 years, I’m always searching for cheap and unloved shares. And when Mr Market has his occasional meltdowns, I see these as good opportunities to find beaten-down stocks. Right now, I see deep value in the FTSE 100 index — one of the best-performing stock indexes in 2022.

What do I mean by cheap shares?

When I say cheap shares, what I mean is the stocks of good-quality, established companies with easily understandable business models. To be honest, I don’t mind paying premium prices to invest in great businesses. But for extra margin of safety, I prefer to buy shares trading on low price-to-earnings ratios and high earnings that offer market-beating dividend yields. This is my classic approach to finding cheap/value shares.

I like big FTSE 100 dividends

One thing that really attracts me to cheap shares is high dividend yields. Right now, the FTSE 100 index offers a cash yield of under 4% a year. So dividends well in excess of this market benchmark often turn my head.

For example, in a quick screen of the FTSE 100, I found more than 10 shares offering dividend yields above 6% a year. That’s over 1.5 times the cash yield of the wider index. And as an old-school investor, I know that dividends can account for up to half the long-term returns from UK shares. Thus, I’m always keen to add more dividend-paying dynamos to my family portfolio.

Four high-yielding shares I’d buy today

Here are four high-yielding cheap shares from the FTSE 100 that I spotted today (sorted from highest to lowest dividend yield):

Company Sector Share price 12-month change Market value P/E* Earnings yield Dividend yield Dividend cover
Persimmon Housebuilding 2,173.0p -32.9% £6.9bn 8.8 11.3% 10.8% 1.0
Rio Tinto Mining 5,838.0p -7.4% £97.1bn 5.7 17.6% 9.9% 1.8
Imperial Brands Tobacco 1,786.5p 11.9% £16.9bn 8.4 11.9% 9.0% 1.3
M&G Financial 217.0p -12.7% £5.6bn 67.3 1.5% 8.4% 0.2
*P/E is price-to-earnings ratio

As you can see, these four shares have had a mixed 12 months. The best performer among these cheap shares is tobacco manufacturer Imperial Brands, whose stock is up nearly 12% in the past year. The worst-performing is housebuilder Persimmon, whose stock has crashed by nearly a third in a year.

Though all four are FTSE 100 firms, their market values range widely, from under £6bn at asset manager M&G to over £97bn at mining heavyweight Rio Tinto. But what really draws me to these four is their bumper dividend yields. The highest is nearly 11% a year, while the lowest is over 8% a year. The average cash yield across all four shares is a market-thrashing 9.5% a year. I like the look of that.

Sometimes, shares are cheap for a reason

Then again, past experience has taught me that very high dividend yields — say, above 10% a year — may indicate company problems. For example, when share prices slump, dividend yields soar in tandem. Thus, some shares with ultra-high dividend yields may turn into capital-destroying ‘value traps’.

To sum up, despite my worries about red-hot inflation, rising interest rates, Russia/Ukraine, Chinese growth, and Covid-19, I’m still committed to buying cheap shares. That’s why I’d buy and hold these four FTSE 100 stocks today!

The post 4 cheap shares I’d buy and hold in June! appeared first on The Motley Fool UK.

6 shares that we think could be the biggest winners of the stock market crash

The hotshot analysts at The Motley Fool UK’s flagship share-tipping service Share Advisor have just unveiled what they think could be the six best buys for investors right now.

And while timing isn’t everything, the average return of their previous stock picks shows that it could pay to get in early on their best ideas – particularly in this current climate!

What’s more, all six ‘Best Buys Now’ are available to access right now, in just a few clicks.

All you need is an email address to get started

More reading

  • Could Top Gun give the Cineworld share price takeoff?
  • 2 cheap shares to buy and hold
  • Could I double my money with Lloyds shares?
  • The Aston Martin share price is down by two-thirds. Is this a recovery play hiding in plain sight?
  • After the B&M share price crashes 15%, would I buy today?

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Pearson. 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.