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I hope to have new money to invest in the coming weeks. So I was looking at FTSE 100 index To get the best value stocks to add to my investment portfolio.
The following UK blue chips trade on price-to-earnings (P/E) ratios below the FTSE average. They also provide forward dividend yields that are above the average index reading.
Which would be the best buy for me right now?
Britain’s largest retailer is back in the news today due to speculation about potential asset sales. Sky News reported that Tesco (LSE: TSCO) is considering offloading its banking division at a price of up to £1 billion.
This could be good news for supermarket shareholders. It will give the business more financial leverage to invest in prices and thus get a better discount. Selling assets can also boost the level of dividends it gives in the short term.
But even if Tesco Bank finds a new owner, it wouldn’t be a game changer for me as a potential investor. I think the company may struggle to make good profits in the coming years as competition increases.
Discount chains Aldi and Lidl are embarking on a rapid expansion of stores. Aldi is opening two new stores in the next month alone and is hiring hundreds of new workers across its distribution centres.
At the same time, Tesco’s new and established competitors are spending heavily on their online operations to steal customers. Internet giant Amazon It specifically threatens to be a huge disruptor for the FTSE. As CEO Andy Jassy told financial times The company is planningGo beyond your limitsWith Amazon Fresh physical stores.
Tesco’s share price today trades at a forward P/E ratio of 14.1x. It also boasts a dividend yield of 4.2%. However, the long-term threat to margins it faces makes it a value stock that I’m most keen to avoid.
I would be more than happy to add more Taylor Wimby (LSE: TW) shares in my investment portfolio. And it’s not just because the homeowner offers better value for money on paper.
The company is trading on a P/E ratio of 12.4x for 2023. It also carries a dividend yield of 7.%.
I think Taylor Wimpey is a better bet for both long term capital appreciation and dividends. I think profits here could rise sharply as the population expands and demand for new homes inevitably increases. The National Housing Federation says 145,000 new homes are needed each year through 2031.
I’m not tempted to buy any more Taylor Wimpey stock just yet, though. This is because I think the dividend could be a disappointment in the near term as the UK housing market suffers. Average asking prices rose by just £14 year-on-year in February, according to Right Move. This was the lowest hike ever.
Right now, I’d rather buy another FTSE 100 stock for dividend income in 2023. However, I’ll look for reasons to add to my stake in Taylor Wimpey as the year progresses.