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The London stock market has enjoyed strong momentum in the year to date. The FTSE 100 and FTSE 250 are both up around 8% since 1 January. Yet despite these solid gains, investors can still dig out undervalued gems with rock-bottom earnings multiples and sky-high dividend yields.
In the table below are some of my favourites this August.
| Stock | Forward dividend yield | Forward P/E ratio | Forward PEG ratio |
|---|---|---|---|
| HSBC Holdings (LSE:HSBA) | 9.1% | 6.9 times | 0.8 |
| Impact Healthcare REIT (LSE:IHR) | 7.9% | 8.5 times | – |
| WPP (LSE:WPP) | 5.1% | 8.3 times | < 0.1 |
Dividend yields on these shares exceed the FTSE 100‘s 3.5% average. These businesses also trade on a low price-to-earnings (P/E) ratio, or price-to-earnings growth (PEG) ratio, or both.
A reminder that a PEG ratio below 1 indicates that a share is undervalued.
Here’s why I think investors should consider buying these passive income heroes today.
HSBC
HSBC’s enormous 9%+ dividend yield for 2024 sails above levels seen in recent years. This is thanks to the scheduled payment of special dividends, following on from recent asset sales in Canada.
Dividends are tipped to fall back to more typical levels after this year. However, the bank still carries enormous yields for the next few years. For 2025, for instance, this clocks in at 7.1%.
HSBC’s low earnings multiples reflect the danger it faces as China’s economy toils. Trouble here poses a problem for the bank’s entire Asian territory.
But as a long-term investor, I think HSBC shares are a brilliant bargain right now. Profits here should rise sharply in the years ahead as booming wealth and population levels turbocharge financial services demand.
Impact Healthcare
Impact Healthcare’s another dependable dividend provider year after year. The rents it receives are inflation linked, and its tenants are tied down on contracts of 20-35 years. On top of this, its classification as a real estate investment trust (REIT) means it must pay at least 90% of annual rental profits out in the form of dividends.
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Impact Healthcare owns and operates 138 care homes across the UK. And it has a tremendous opportunity, in my opinion, to grow earnings and dividends as Britain’s elderly population soars.
I think it’s a great potential buy, although staff shortages in the housing sector could hamper profits growth.
WPP
Advertising agencies like WPP are struggling due to a recent trimming of corporate marketing budgets. This may remain a problem going forward if global interest rates remain around current levels.
Latest financials showed like-for-like revenues down 1.6% in the first quarter. However, with a potential industry recovery around the corner, I think grabbing a slice of this particular FTSE 100 stock could be a great idea.
I think its share price could soar from current levels, as digital advertising — a segment in which WPP is investing heavily — looks poised for substantial long-term growth.
I’m also encouraged by its sharpening focus on artificial intelligence (AI). Other things I like include its excellent relationship with global blue-chip companies and its huge exposure to both developing and emerging markets.
