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Stock market volatility provides an opportunity for investors to buy top stocks on the cheap. Given that UK shares already looked undervalued, recent choppiness on equity markets makes many companies even more tantalising value wise.
Take the following three dividend stocks. Each trades on a forward price-to-earnings (P/E) ratio of below 10 times. They also carry an enormous dividend yield above 5%. Here’s why I think they deserve serious consideration today.
Investec
Shares with low P/Es and sky-high yields are often signs of companies that are experiencing dividend problems (or are tipped to). This isn’t the case with investment bank Investec (LSE:INVP), which has a P/E of just 6.9 and carries a 7% dividend yield.
Like many UK stocks, Investec’s shareholder payouts dropped during the Covid-19 pandemic. Excluding this turbulent period, they’ve risen every year since 2010. Analyst predictions of another rise this financial year (to March 2027) look in good shape, with the expected dividend covered 2.1 times by anticipated earnings.
Investec’s share price might be blown off course if tough economic conditions hit profits. But that strong cover should at least mean dividends meet expectations.
Over the long term, I expect both earnings and dividends to rise strongly as the financial services market booms. Investec’s strong brand power puts it in an especially strong position to seize this opportunity.
Mears
Mears (LSE:MER) provides maintenance and repair services for thousands of homes across the UK. It straddles both public and private sectors, though it typically operates under long-term contracts with housing associations and local authorities.
Today it trades on a forward P/E ratio of eight, and its dividend yield is 5%. This year’s dividend is covered a healthy 2.5 by anticipated earnings. So what are the risks?
With a strong reliance on government contracts, profits are greatly influenced by policy changes that impact budgets. But on balance, I think its still a rock-solid stock to consider — after all, demand for quality residential property remains stable at all points of the economic cycle.
Looking longer term, I think it could deliver brilliant all-round returns as Britain’s booming population drives housing demand.
Custodian Property Income REIT
As its name implies, Custodian Property Income REIT (LSE:CREI) is designed to deliver passive income to shareholders. In this respect it isn’t alone — all real estate investment trusts (REITs) must pay at least 90% of rental profits out in dividends.
So what makes this particular one so special? Firstly, its 7.1% dividend yield for this financial year (to March 2027) is one of the sector’s highest. And its forward P/E ratio is a snip at 9.9.
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With interest rates falling and the UK in low-growth mode, Custodian could experience occupancy and rent collection issues going forward. But I’m confident it can sidestep such problems given its wide operational wingspan.
In total, it has 430 tenants across a variety of industries, meaning it enjoys stable income streams over time. And it has customers tied down on long contracts which further improves earnings visibility.
