The FTSE 100 has been on a terrific run, putting on more than 1,200 points since early October to break through the 8,000 barrier for the first time.
It has climbed 6.91% over 12 months, and is up 5.17% so far this year alone. This is well below the standards set by US tech stocks during their golden run, but is impressive given the many strong headwinds out there.
Blue-chips rising
London’s index of top blue-chip stocks has shrugged off the war in Ukraine, the energy shock, Chinese lockdowns and rising inflation and interest rates. It has outpaced most global markets, for example, the US S&P 500 is still down more than 10% over one year, with the Nasdaq down 17.57%.
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I’ve been enjoying the FTSE 100’s recovery. In October, I decided it was too cheap to ignore and loaded up on undervalued stocks that have since risen smartly.
At the time, buying FTSE 100 stocks was a no-brainer. It was packed full of top stocks trading at less than 10 times earnings and yielding anything from 5% to 9%. But is it still a good time to buy FTSE 100 shares today?
While many shares are more expensive than they were a year ago, some have barely moved at all. Barclays shares are up just 0.69% in that time. Insurer Legal & General Group has ticked up 0.85% over the same period. Housebuilder Barratt Developments is crashed 20.47%. Vodafone is down 22.39%.
That’s the beauty of buying individual stocks rather than an index tracker. They behave differently, and offer investors like me different things at different times.
When share prices rise, yields automatically fall. That’s because they are calculated by dividing the dividend by the share price. Yet I can still spot some amazing yields on the FTSE 100.
Top dividend stocks going cheap
From the above list, Barclays is forecast to yield 5.7%, covered 3.7 times by earnings. L&G’s forward yield is 7.91%, with cover of 1.7 times. Barratt’s forward yield is 7.56%, nicely covered twice. Vodafone yields 9.1%, but with wafer thin cover of just 1.1 times.
These stocks are all dirt-cheap too, with Barclays trading at 5.7 times earnings, L&G valued at 7.52, Barratt at 5.4 times, and Vodafone at 10.2 times.
Just because a stock is cheap, does not make now a good time to buy. I could be walking into a value trap, and would need to examine the company’s accounts carefully. Here we would be able to see how sustainable its profits are, whether it generates enough cash to fund the dividends, and what threats it might face from new market entrants.
I reckon now could be a good time to buy Barclays, L&G, or Taylor Wimpey, but I’m wary of Vodafone. While some of my fellow Fool writers admire this Dividend Aristocrat, I like the prospect of generating capital growth as well. The Vodafone share price has gone nowhere for two decades.
I have no idea where the index will go from here (although I suspect it might tread water for a bit). I wouldn’t buy a tracker today, but I would buy individual FTSE 100 stocks.
Time to add Barclays, L&G and Taylor Wimpey to my wish list.
