There has been a lot of volatility in the FTSE indices this year. And as a result, I think there are plenty of cheap UK shares out there that can provide me with high-quality returns over the long term.
I start by looking at three key metrics when considering whether a company is a good investment. Profitability, dividend yield and share price. Simplistically, if a profitable business that pays out dividends is trading at a cheap price, then there’s a good chance I might get some value out of it.
I’m always looking to hold for the long term, so considering the business’s viability for a successful future is also important to me.
I’ve picked out two companies that I think represent a good investment today.
Vodafone
Currently trading at 116p, the Vodafone (LSE: VOD) share price has mostly been trending downwards recently. It’s down 5% over the last year, but has dropped almost 10% in the last month!
The telecoms juggernaut has recently returned to profitability, posting a net profit of over £2bn in 2022. This has followed on from loss-making financial years 2019 and 2020, and a small profit in 2021. Revenues have been stable over this period at between £43bn and £46bn, whilst expenditure for each year has fluctuated.
When it comes to dividends, Vodafone has consistently paid out, even in loss-making years. The current dividend yield is sitting at 6.5%, which fares very well against the FTSE 100 average of around 4%.
Vodafone announced recently that it will sell its Hungarian business operations. The deal is expected to bring in £1.5bn with a view of streamlining operations and reducing net debt. I always like signs of a company wanting to streamline, and with inconsistent profitability being my primary concern with this company, I think this is good news.
Taylor Wimpey
Taylor Wimpey (LSE: TW) shares are 111p at the time of writing, an astonishing 38% lower than this time last year!
The building trade is one that sees higher volatility in a wider economic downturn. So perhaps the share price drop isn’t a huge surprise in the context of supply-chain issues, a cost-of-living squeeze and a possible recession on the horizon in the UK.
But I think this company represents excellent value at its current share price.
The housebuilder has consistently recorded profits over the past five years, and recent quarterly figures are showing a net profit margin of 12.5%.
It’s also encouraging to read about Taylor Wimpey’s dividend policy. It states:
“Dividend policy is to return c.7.5% of net assets to shareholders annually.”
Whilst the dividend yield is currently sitting at a healthy 8%, it’s also important to point out that dividend payouts are linked to the “cyclical market” in which Taylor Wimpey operates. We saw this play out during Covid-hit 2020, where no dividend payments were made.
Overall, I think both companies represent great value right now! I will be adding them to my portfolio in the very near future.