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2 dirt cheap value stocks for big dividends

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Over time, I developed and refined my investing strategy. And after 37 years, I much prefer owning value stocks than any other type. These shares trade on low multiples of earnings, while often paying decent dividends.

And when Mr Market has another tantrum and trashes share prices, I’m eager to buy more cheap shares.

Footsie value stocks

Of 100 shares in the FTSE 100, just 15 have risen over the past month. The other 85 stocks are down, with losses ranging from 0.5% to 31.5%. Trawling through this long list of losers, I found several shares that seem brilliant bargains to me.

Here are two trading at deep discounts following the FTSE 100’s 8% drop from its 16 February peak.

1. Barclays

Barclays (LSE: BARC) shares are among the worst performers since 16 February. To me, they might just be the Footsie’s biggest buy today. Based on these figures, the stock looks deeply undervalued to me.

Current price 141.95p
52-week high 198.86p
52-week low 132.06p
One-month change -18.2%
One-year change -17.3%
Five-year change -30.5%
Market value £22.5bn
Price-to-earnings ratio 4.8
Earnings yield 21.0%
Dividend yield 5.1%
Dividend cover 4.1

Barclays shares are within 7.5% of their 52-week low, having lost nearly a fifth of their value in one month.

Looking at Barclays’ dividend yield of 5.1% a year, I’m tempted to buy more of this stock. What’s remarkable is that this cash payout is covered over four times by trailing earnings. Even if the bank has a tough 2023, this cash yield looks rock-solid to me.

However, with the economy weakening and consumer confidence low, 2023 could mean higher loan losses for Barclays. Even so, I see the Blue Eagle bank’s stock as among the cheapest large-cap value stocks. At these prices, it appears an absolute steal to me.

2. Anglo American

Though less well-known than Barclays, global miner Anglo American (LSE: AAL) has a market value 50% higher than the bank’s. Anglo is the world’s leading producer of platinum and also mines copper, diamonds, nickel, iron ore, and coal for steel-making.

Of course, mining is a dirty business, so Anglo doesn’t score highly with environmental, social and governance (ESG) investors. But when commodity prices are high, Anglo and its peers generate torrents of cash for their shareholders.

Here’s how its shares stack up today.

Current price 2,469p
52-week high 4,996.8p
52-week low 2,437.5p
One-month change -23.1%
One-year change -32.4%
Five-year change +49.6%
Market value £33.1bn
Price-to-earnings ratio 8.1
Earnings yield 12.4%
Dividend yield 6.7%
Dividend cover 1.9

Though Anglo’s shares have plunged by almost a quarter in the past month, they’re up by almost half over five years. These figures exclude cash dividends, which this Footsie firm loves to pay out.

In addition, Anglo’s hefty cash yield is covered almost twice by earnings. Even if commodity prices and group earnings dive in 2023, this cash payout might not be cut. I don’t own Anglo shares, but I’d like to, so it’s on my buy list.

Of course, if the global economy weakens further in 2023, driving down commodity prices, then Anglo’s profits would take a knock. Indeed, I fully expect the group’s earnings to be lower this year. But I’m not worried, as I play a very long game when buying value stocks!

The post 2 dirt cheap value stocks for big dividends appeared first on The Motley Fool UK.

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Cliff D’Arcy has an economic interest in Barclays shares. The Motley Fool UK has recommended Barclays Plc. 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.