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I’d buy dividend stocks to bag some bargains before the next stock market rally

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I’m relying on dividend stocks to generate the income I need in retirement, and right now I think it’s a great time to buy them. There are some incredible bargains on the FTSE 100, and I don’t see any point hanging around.

Some investors may be wary of buying shares amid today’s massive economic and political uncertainty. I feel differently. Personally, I would rather buy dividend stocks in times of trouble, than growth stocks when markets are on a roll.

I’d load up on UK dividend stocks today

I shunned US tech giants last year, as prices climbed ever higher. The likes of Facebook (now Meta Platforms), Netflix and Tesla were far too frothy for my liking.

UK dividend stocks look good value to me, even though we haven’t seen a massive sell-off. The FTSE 100 is down just 3.95% this year. That’s a solid showing. The S&P 500 is down 17.31%, despite the summer rally.

Yet there are a host of bargain dividend stocks on the index. It’s almost a case of take your pick.

My personal picks would include fund manager Abrdn, which yields an incredible 9.74%. That dividend aristocrat would almost double my money in a decade, even if the share price did not rise one jot. The stock trades at a 11.05 times earnings. That’s cheap, but other dividend stocks are a lot cheaper.

Lloyds Banking Group now trades at just 5.96 times earnings. It currently yields 4.46%, but that could climb to 5.6% next year, as management rebuilds its dividends. 

The housebuilding sector is full of dirt-cheap stocks with sky-high yields. I’ll pick out Taylor Wimpey, which trades at 5.92 times earnings and yields 8.14%. I might as well have selected Barratt Developments or Persimmon.

Insurers are also rewarding for income seekers. Aviva trades at 7.7 times earnings and yields 6.67%, while Legal & General Group trades at 7.46 earnings and yields 7.26%.

No need to go on, because I think I’ve made my point. There are FTSE 100 bargains galore and I don’t see much point in waiting for them to become cheaper still.

I’ll hold my FTSE 100 stocks for decades

As ever with investing, this is not a surefire bet. The FTSE 100 could crash, as war rages in Ukraine and inflation makes everyone feel poorer. Some of the stocks listed here have been trading on low price/earnings ratios for years, and I can’t assume they will all revalue upwards. Dividends are never guaranteed.

If markets do crash, I will buy more dividend stocks and average down on my entry price. On the other hand, if the stock market rallies, which history suggests it will at some point, I will be glad I bought at today’s bargain prices.

Either way, I’m not too worried what happens to their share prices in the short term. That’s because I plan to hold them for 20 years, or more. It’s the income I’m after here.

The post I’d buy dividend stocks to bag some bargains before the next stock market rally appeared first on The Motley Fool UK.

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Harvey Jones holds shares in Aviva. He doesn’t hold any of the other shares mentioned in this article. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Lloyds Banking Group and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.