Buying low and selling high. It’s a critical investment strategy that seems blindingly obvious to most of us. But it’s one that many share investors seem to be forgetting right now. It’s why there are mountains of top FTSE 100 dividend stocks that remain left on the shelf despite their rock-bottom prices.
Economic downturns and stock market crashes are nothing new. They’re frightening and they take a bite out of our investment returns. However, studies show us that most share investors tend to make great returns even accounting for bouts of market volatility. Those that buy and hold stocks for the long run make an average annual return of between 8% and 10%.
Snapping up cheap shares following the 2020 market crash gives us all a chance to maximise those returns. And the opportunities to buy some choice dividend shares remains strong despite some high-profile payout cuts in recent months.
A 7%-yielding dividend stock
FTSE 100 share Babcock International is one dividend share that’s attracting my attention today. At current prices the defence contractor carries a forward yield just shy of 7%. It trades on an ultra-low price-to-earnings (P/E) ratio of six times as well.
Global defence spend has spiked in recent years and recent news flow suggests that this trend is set to continue. Sure, the economic consequences of Covid-19 will cause governments to scale back spending. But souring global diplomacy among major nations and a growing terrorist threat mean that arms-related expenditure will likely keep on rising. As an important supplier to Western militaries, Babcock International can therefore expect profits to keep racing ahead for some many years yet.
Another FTSE 100 bargain
I’d also pile into DS Smith at current prices. I bought into this FTSE 100 share a couple of years ago because it appealed to me as both an exciting growth and dividend stock. And fresh financials released last week reinforced my positivity.
Then, the packaging giant said that soaring e-commerce sales continued to drive adjusted profits higher, as did rising demand for packaging made from sustainable sources. And the future remains very bright. As the business said, “the core market growth drivers of e-commerce, consumer and retail channel evolution and plastic substitution are more relevant than ever in the post-Covid-19 environment.”
At current prices DS Smith trades on a forward P/E ratio of 11 times. It carries a bulky 4.6% dividend yield, too. And so I’d use recent price weakness as an opportunity to buy this FTSE 100 star.
A 9% FTSE 100 yield
Direct Line Insurance Group also looks too good to miss at current prices. Today it can be snapped up on a forward P/E multiple of 11 times for 2020, though admittedly this isn’t why it catches my eye. Its 9% dividend yield makes it one of the best FTSE 100 income stocks to buy today.
Even nervous investors can afford to buy Direct Line today. Even when people’s spending power falls during tough economic times like these their demand for general insurance remains robust. Sales of car insurance products, a specialty of this FTSE 100 insurer, stay particularly strong owing to its legal requirements. In my opinion the company’s cheap valuation doesn’t reflect its rock-hard defensive qualities and this makes it a top buy today.