HomeInvestingIs this the best chance to buy cheap FTSE 100 shares in...

Is this the best chance to buy cheap FTSE 100 shares in a generation?

Picture supply: Getty Photos

I purchase FTSE 100 shares to attempt to construct some long-term passive earnings. However how can inventory market newcomers inform the perfect time to begin?

I at all times say the perfect time is true now, immediately. I’ve by no means seen any good method to time the market. And not one of the world’s prime buyers ever have both.

So begin as quickly as we will, make investments as a lot as we will, and maintain going for so long as we will.

Fortunate begin?

But when, by luck, we occur to begin at a time when shares are particularly low cost and dividends are unusually excessive? That can provide us an additional enhance.

I feel we’re in that state of affairs proper now. Share valuations are low and dividend yields are excessive.

However, first, a brief story of warning, about Vodafone (LSE: VOD). Vodafone shares have been on an extended sluggish slide.

Dealer forecasts recommend a middling price-to-earnings (P/E) ratio of 15, however that it’s going to drop near 10 by 2026 on good earnings development expectations. That’s not excessive.

Dividend slashed

The worth fall pushed the dividend yield as much as 11%. So, a low share valuation and an enormous dividend. Shouldn’t we long-term earnings buyers pile in with each penny we will spare?

Nicely, in a long-awaited transfer, Vodafone has simply halved its dividend, beginning in 2025.

Because it occurs, the agency has lengthy wanted the type of shakeup it’s getting now. And I price it as a great (if a bit dangerous) purchase now.

But it surely does warning us in opposition to simply shopping for low worth shares with the market’s largest yields.

Nonetheless, I actually do assume these beginning a Shares and Shares ISA this 12 months might get a pleasant begin.

Estimates fluctuate, nevertheless it appears the FTSE 100 is on a median P/E of about 12 now. In comparison with a long-term worth of round 15, that’s low.

Forecasts put the general FTSE 100 dividend yield at 3.9% this 12 months, and 4.2% subsequent 12 months. That’s comparatively excessive, and there’s extra.

Share buybacks are rising on prime of that, and it seems like 2023 might prove to have been a file 12 months for them.

Which sectors?

I do see one threat, although. Forecast dividend development shouldn’t be properly unfold out, and appears to be concentrated in just some sectors.

Based on AJ Bell‘s Dividend Dashboard, banks are up there, with HSBC Holdings on for the largest dividend rise in money phrases. Oil giants BP and Shell ought to submit massive rises too, as ought to British American Tobacco.

Perennial earnings favorite Nationwide Grid also needs to be within the prime 10.

It’s tempting to go for the largest dividend beneficial properties within the prime sectors. However I feel we have to be further cautious about diversification at instances like this. I see it as a necessary approach to assist maintain threat down.

However, I do assume this would possibly simply grow to be the perfect 12 months to get began that we’ll see for a very long time.


Most Popular