If I was investing £2,000 in a tax-free ISA today, I’d be scouring the FTSE 100 for dirt-cheap bargain stocks offering attractive dividends. There are plenty to choose from right now, and I’d split my money between broadcaster ITV (LSE: ITV) and builder Taylor Wimpey (LSE: TW).
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ITV currently yields 4%. That isn’t the highest dividend yield on the FTSE 100, but it is covered 4.6 times by earnings, giving scope for progression. It looks doubly attractive when combined with its dirt-cheap valuation of just 5.4 times earnings.
That makes Taylor Wimpey look relatively pricey, with its valuation of 7.3 times earnings. Obviously, that’s cheap too, roughly half the average FTSE 100 price/earnings ratio of 15.63. It currently yields an eye-catching income of 6.54% a year.
So why are these two dividend heroes so cheap? The ITV share price has had a rotten time lately, falling 25% in the last six months. Having only re-entered the FTSE 100 in June last year, it risks falling out again, as its market cap has now slumped to just £3.34bn.
Two FTSE choices for my ISA
That seems harsh given that last month it posted a 46% jump in operating profit to £519m for 2021. It was boosted by the success of Love Island, The Masked Singer and Gareth Southgate’s England team in the 2020 Euros.
Investors ignored all that and cast a nervous eye over management’s ambitious spending plans instead. It’s pouring £1.23bn into original content, in a bid to double its digital revenues.
ITV does risk over-reaching itself in an increasingly competitive market. However, I reckon the backlash has been overdone. I’m pleased to see management taking the fight to Netflix, Amazon and other streaming giants. I think today’s cheap valuation more than justifies the added dangers. As does the dividend. ITV is forecast to yield 6.7% in the year ahead, with cover remaining strong at 2.5. I’d buy it for my ISA.
Taylor Wimpey’s stock has also disappointed, falling 25% over the last year. That’s par for the course in the housebuilding sector. Barratt Holdings, Persimmon and Vistry Group have all suffered similar declines. Rising interest rates, higher building costs and the cost of living crisis have hit home. The upside is that their share prices look cheap.
Taylor Wimpey has bounced 4% today, following reports the government is dropping demands for housebuilders to contribute towards a £4bn cladding fund.
I’d buy these dirt-cheap stocks today
Last month, Taylor Wimpey also reported a strong 2021, with revenues soaring by 53.6% to £4.28bn. Home completions jumped 47% to 14,087 (helped by Covid restrictions easing). The UK housing market has to slow at some point, but property shortages should underpin prices, in my view.
Mortgages are still very, very cheap, by historical standards. As is Taylor Wimpey, which is why I would add it to my ISA portfolio today.