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I hope to have new funds to invest in next week. So I’ve been looking FTSE 100 for the best value stocks to add to your investment portfolio.
The following UK blue chips are trading at a lower price-to-earnings (P/E) ratio than the FTSE average. They also offer forward dividend yields above average index readings.
Which would be a better buy for me now?
Tesco
Today, Britain’s biggest retailer is back in the news amid speculation about a possible asset sale. Sky News reports that Tesco (LSE:TSCO) is considering shedding its banking division for up to £1bn.
This could be good news for supermarket shareholders. It will give businesses more financial leverage to invest in prices and thus more take on discounters. Asset sales can also increase the dividend yield in the short term.
But even if Tesco Bank finds a new owner, it won’t be a gamechanger for me as a potential investor. I think businesses may struggle to make decent profits in the coming years as competition increases.
Discount chains Aldi and Lidl are both embarking on rapid store expansions. Aldi is opening two new stores next month itself and hiring hundreds of new workers at its distribution centre.
At the same time, Tesco’s new and established rivals are spending heavily on online operations to poach customers. internet giant Amazon specifically threatens to be a significant disruptor for the FTSE firm. Chief executive Andy Jassy has also told the Financial Times if the company plans to “so big” with Amazon Fresh physical stores.
Today Tesco’s share price is trading at a forward P/E ratio of 14.1 times. It also offers a dividend yield of 4.2%. However, the long-term threat to the margin it faces makes the stock worth the price I’d like.
Taylor Wimpey
I would rather add more Taylor Wimpey (LSE:TW) shows my investment portfolio. And not just because homebuilders offer better value for money on paper.
The company trades at a P/E ratio of 12.4 times to 2023. It also has a juicy 7.% dividend yield.
I think Taylor Wimpey is a better bet for long-term capital appreciation and dividends. I believe that the income here can increase greatly because the population is expanding and the demand for new homes will definitely increase. The National Housing Federation says 145,000 new homes are needed every year until 2031.
I’m not tempted to buy more Taylor Wimpey shares yet, though. This is because I think the dividend could disappoint in the nearer term due to the UK housing market’s struggles. Average prices rose by just £14 a year in February, according to the report Move right. This is a record low.
I would now prefer to buy another FTSE 100 share for dividend income in 2023. However, I will be looking for reasons to add to Taylor Wimpey shares during the year.
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