When stock markets are in turmoil, calm investors who don’t panic can find some nice long-term buys. The obvious temptation is to look for depressed share prices and buy for growth. But when markets are cheap, I think income shares can be among the best shares to buy.
The beauty lies in the dividend yields. If we buy when share prices are low, dividend yields are higher. And we get the benefit of that higher yield every single year we hold the shares we buy. Right now, I see so many opportunities it’s hard to choose which shares to buy. But I’ll try.
I’m going to pick a company from the FTSE 100, one from the FTSE 250, and an investment trust.
Bank on insurance
The Legal & General (LSE: LGEN) share price has dipped 20% since January’s peak.
I actually think that’s reasonably resilient, with the financial sector hard hit this year. The fall puts the shares on a forward price-to-earnings (P/E) ratio of 7.5. That’s about half the current FTSE 100 average.
And while I expect financial stocks to fall below average, I reckon that’s too cheap. It’s surely because of the uncertainty that insurers face during tough times, and the risk is genuine.
But, more importantly, the forward dividend yield for 2022 stands at nearly 8%. And it rises above 8.5% on 2024 forecasts. These are very uncertain times, and these yields are far from guaranteed. But I rate Legal & General among today’s best FTSE 100 shares for investors to buy.
Houses are safe, right?
The FTSE 250 is awash with fat financial sector dividends. But for diversification, I’m picking housebuilder Bellway (LSE: BWY), whose share price looks like this.
That slide has dropped the P/E down as low as six, and pushed the forecast dividend yield up as high as 6.3%.
Investors are clearly expecting the housing market to take a hit from rising interest rates. And house moves will presumably be put on hold too. Or will they?
For the four months to 5 June, Bellway reported strong sales demand. And if we switch to Persimmon‘s first-half update to 30 June, we see rising forward sales and increasing gross margins.
There is a very real risk that a prolonged economic downturn could hurt our housebuilders. But Bellway’s dividend looks attractive to me for long-term income.
An income hero
Merchants Trust (LSE: MRCH) is an investment trust targeting UK equity income. It’s share price has held up over the past year, but it’s been dipping these past couple of months.
The dividend yield is only a relatively modest 5%. But it has a couple of advantages that I think elevate it above some of its peers. Merchants makes the list of Dividend Heroes put together by the Association of Investment Companies, having raised its dividend every year for 40 years in a row.
The trust also aims to provide long-term capital growth, to add to its income potential.
Should its long run of dividend rises miss a beat, I could see the share price being hit. But, to me, Dividend Hero equals income hero.