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2 dirt-cheap FTSE 100 dividend stocks! Should I buy them in October?

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I’m searching for top FTSE 100 value stocks to buy in October. Are these cheap dividend-paying shares too good to be true?

Persimmon

The investment outlook for housebuilders like Persimmon (LSE: PSN) has undoubtedly darkened this week.

The recent run on the pound means the Bank of England will likely take emergency action to support the ailing currency. Markets are now expecting interest rates to peak at around 6% next year in a worrying omen for the housing market.

I’d argue, though, that Persimmon’s fresh share price slump now reflects this landscape. Its forward price-to-earnings (P/E) ratio has dipped to a meagre 5 times.

It hasn’t all been bad news for the housebuilders recently. In last week’s ‘mini budget’ the Chancellor announced plans to raise the levels at which Stamp Duty becomes payable. Similar moves have been a huge boost to property sales in recent years.

At the same time government support for first-time buyers remains in place. The Deposit Unlock scheme allows buyers to secure a property by putting down just 5%. What’s more, an ultra-competitive mortgage market has continued to drive sales of new homes.

Persimmon’s recent share price plunge has also driven its dividend yield for 2022 to a jaw-dropping 18%. Because of this I’m considering adding to my holdings of the stock in October.

J Sainsbury

Supermarket J Sainsbury (LSE: SBRY), meanwhile, offers a chunky 6.4% dividend yield for this financial year (to March 2023).

I like the steps the company’s taking to embrace online grocery growth. Heavy investment in recent years means Sainsbury’s can now fulfil 850,000 orders every week. This is a segment with huge upside as food shoppers steadily switch from store visits to internet clicks.

Analysts at Statista think online will account for 13.2% of all edible supermarket chain spending by 2026, up from 11.8% last year.

However, this isn’t enough to tempt me to buy Sainsbury’s shares today. The country’s food retailers are enduring a double whammy of soaring cost inflation and sinking consumer spending power. This is putting already-weak profit margins under increasing pressure (J Sainsbury’s own underlying operating margin sat at just 3.4% in the last financial year).

Established operators like this have a choice. They can slash prices at the expense of margins. Or they can watch their customers flock to budget chains. Aldi chief Giles Hurley just told BBC News that the chain has added 1.5m customers in 12 weeks amid the worsening cost-of-living crisis.

City analysts think earnings at Sainsbury’s will fall 16% year on year in financial 2023. But I think they could come in well below forecast as headwinds intensify. And I think profits could stay under pressure over the long term as competition steps increases online and in the physical world.

I’m happy to avoid this FTSE 100 stock, despite its huge dividend yield and low P/E ratio of 9.3 times.

The post 2 dirt-cheap FTSE 100 dividend stocks! Should I buy them in October? appeared first on The Motley Fool UK.

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Royston Wild has positions in Persimmon. The Motley Fool UK has recommended Sainsbury (J). 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.