British investors like value stocks. They also like high dividend yields.
Here, I’m going to highlight three stocks that are both cheap and have big yields so are worth considering. Let’s get into it.
Long-term growth story
First up is banking powerhouse HSBC (LSE: HSBA). It currently sports a forward-looking price-to-earnings (P/E) ratio of 6.7 and a yield of about 7.3% (excluding this year’s special dividend).
I tend to steer clear of banks when buying stocks for my portfolio as they often have very complex balance sheets (meaning there can be hidden risks). But even with that, I’m tempted by the bigger picture with this one.
I like the fact that HSBC has significant exposure to Asia. This region has a lot of potential from a banking perspective in the long run.
I also like the fact that the company is growing its wealth management unit. This is helping to diversify its revenue streams.
One other thing that stands out here is that the company is buying back its own shares (it just announced a $3bn buyback). This should provide some support for the stock in the near term.
Sky-high yield
Next we have savings and investment firm M&G (LSE: MNG). It has a P/E ratio of about 9.3 and a yield of around 9.6%.
Now, when a yield is this high, a bit of caution can be warranted. That’s because a super high yield can be a signal that a company is in financial distress (often what has happened is that the ‘smart money’ has dumped the stock, pushing its yield up temporarily).
Looking at M&G, however, I don’t see any major red flags. Last year, the company generated a significant increase in operating profit and ended the year with a Shareholder Solvency II ratio of 203% (a solvency ratio shows a company’s ability to meet its long-term debts and obligations).
Of course, investment companies like M&G can experience challenging years when there are periods of financial market turbulence, so this is a risk going forward. Yet this company has been around for over 150 years though, so I believe it can navigate any future volatility.
Exposed to powerful trends
Finally, we have mining giant Rio Tinto (LSE: RIO). It currently trades on a P/E ratio of 8.7 and has a dividend yield of 6.8%.
Investing in mining stocks can be a little risky. That’s because revenues, earnings, and dividends are highly dependent on commodity prices and these can swing around wildly (so I wouldn’t rely on the dividend yield I quoted above).
Taking a long-term view, however, Rio Tinto has the potential to do well. As a producer of iron ore, copper, and other important metals and minerals, it’s well placed to benefit from a number of major trends including the global energy transition, infrastructure development, and population growth.
I think the key with this kind of stock is to size it appropriately in one’s portfolio and own plenty of other stocks for diversification. That way, if it experiences some volatility due to a commodity price meltdown, it won’t be the end of the world.
Anyone looking for more value/dividend stock ideas, will find plenty right here at The Motley Fool.
This post was originally published on Motley Fool
