The new tax-year begins today. For me, that means adding fresh cash to my Stocks and Shares ISA. It also means I’m on the lookout for some dirt-cheap stocks to buy.
Although I don’t need to invest straight away, I’d quite like to put my money to work very soon. The reasons are twofold. First, inflation is running at over 6%. That’s the highest since 1992. I want my investments to at least keep pace with rising prices. Secondly, I want to start receiving dividends as soon as possible. That’s so that I can reinvest them to grow my pot even further.
Best dividend stocks to buy
I reckon there are some excellent opportunities right now in dividend-paying FTSE 100 shares. For instance, Imperial Brands (LSE:IMB) currently offers a dividend yield of over 8% and trades on a price-to-earnings ratio of just 6x. That sounds dirt-cheap to me.
Should you invest £1,000 in Imperial Brands right now?
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I’m often sceptical of dividend yields greater than 7%, but Imperial has an impressive track record when it comes to distributing cash to shareholders. It has been paying dividends for over 25 consecutive years. I also find it encouraging that it has sufficient earnings and cash flow to sustain its payout.
Business transformation
Imperial is in the early stages of a multi-year transformation plan designed to deliver “a stronger and more consistent performance in both conventional tobacco products and next generation products”. Ultimately, it aims to create long-term value. As such, I’d look to own it for some time.
Bear in mind that business transformation carries risks and can often take longer than planned or face hiccups along the way. That said, given its low valuation and relatively high dividend, I’m not too concerned at this stage.
A share for tough times
In my opinion, the best stocks to buy right now should be those that can protect against rapidly rising energy costs. One such FTSE 100 share is SSE (LSE:SSE). It’s the leading generator of renewable electricity and one of the UK’s largest electricity network companies.
SSE is on a mission to increase renewable energy output fivefold by 2030. It also has a fully-funded £12.5bn capital investment plan across the next five years to help it to do so.
I’m not usually too keen on utilities shares, as I find their share price performance sluggish. That said, SSE shares still managed to return an average 7% per year over the past decade. But I’d put most of those gains down to its dividend.
Another top dividend share
Currently, it offers a 5% dividend yield. That’s certainly greater than the average FTSE 100 yield of 3.5%. Another reason to like these shares is that it looks like a well-run business to me. Earnings are growing, and it offers a double-digit profit margin. Shares like SSE could perform relatively well in tough economic times. That said, at some point strength will return to the UK economy. And when that happens, I might want to swap some shares like SSE for some cyclical businesses like equipment manufacturer Ashtead. But until then, I’m happy to buy some slow and steady shares like Imperial and SSE.
