2 cheap FTSE 100 dividend shares I’m avoiding like a bad smell!

I think it’s cheap FTSE 100 Dividend stocks can be classic value traps. This is why I steer clear of them.

Barclays

Banking stocks have been badly damaged in recent times. The carnage may continue due to concerns about the US and European financial sectors.

FTSE 100-quoted Barclays (LSE:BARC) is one of the UK’s worst hit banks. Susannah Streeter, analyst at Hargreaves Lansdownenoted that “London-listed banks are reeling from concerns that the value of their big bonds will fall..”

It is still early days and it is not yet clear how much danger Barclays is in. But I still avoid high street banks, regardless of these more recent developments.

The business has suffered from persistent weakness in profits as the UK economy struggles. Bad loans (which rose to £1.2 billion last year) threaten to continue to rise, while profits could reverse quickly as interest rates fall.

Last week, the Organization for Economic Co-operation and Development (OECD) said it expected domestic GDP to fall 0.2% in 2023. It also predicted a 0.9% rebound next year. This would make Britain the worst performing G20 country (bar Russia) for the next two years.

I believe Barclays’ large corporate and investment bank can generate good returns over the long term. But this was not enough to encourage me to invest, due to another bank problem.

Today, the stock sits at a forward price-to-earnings (P/E) ratio of just 4.7 times. They also offer a FTSE 100-beating 6.3% dividend yield. It’s cheap, but not cheap enough for me.

Tesco

The retail giant Tesco‘s (LSE:TSCO) shares also offer good value on paper. It trades at a prospective P/E ratio of 11.5 times and offers a dividend yield of 4.6%. This is north of the FTSE 100 average of 3.7%.

Buying stock in a large supermarket like this can have significant benefits. Larger companies bring significant economies of scale that provide large profits by reducing costs.

This specialty wholesaler also offers incredible customer loyalty. Thanks to the decades-old Clubcard loyalty scheme, people keep flocking to the door to get great discounts.

But Tesco is not immune to competitive threats. In fact, the steady growth of discounters Aldi and Lidl is one of the reasons I won’t be buying the company’s stock right now.

Established supermarkets have had to cut prices to compete with the growing number of off-price chains. This had a devastating effect on Tesco’s profits et al making colossal sales.

At the same time, margins are being squeezed by rising costs. Aldi last week raised the pay of store staff for the fourth time in more than a year. And wages across the industry appear to be steadily rising as the labor shortage deepens. Rising energy and product costs are also seen over time.

There are plenty of cheap dividend stocks for me to buy after the recent market volatility. So I’m happy to leave Tesco and Barclays on the shelf and go for other value stocks.