FTSE 100 high yield, low prices!

Shopping FTSE 100 Shares mean participation in some of the biggest businesses in the country.

That may sound like an expensive undertaking. In fact, some of the FTSE 100 stocks are undervalued compared to what I think they are worth. Not only that, but they also offer a high dividend yield.

I see few such stocks in the current market. Here's how to get them!

Understanding what value means

First of all, I look for businesses that I like the look of because I think they have the potential to generate strong profits over the long term. If I don't like the look of the business then it may not give me value even if it has a low share price.

For example, when Ocado was in the FTSE 100, I thought it still had to prove that its business could make money in the long term given its huge costs. I didn't invest – and I was alone. The company has since fallen off the list of major indexes, down 70% in five years.

But even though I like the company, the price means paying less than I think it's worth.

Another way would be to choose a business with a low price-to-earnings (P/E) ratio. But when I do that I need to be aware of a few things.

I look at how sustainable the income is. I also consider how much debt (or cash) the company has on its balance sheet. After all, even if a company earns a lot of money, if it needs to use it to pay off debt, that profit may never trickle down to the shareholders.

High yield is not a big risk

Therefore, shares may look like a commodity without being one. But some stocks, even in the FTSE 100, offer both good value and high yield without an unusually high risk profile.

For example, consider insurance Aviva (LSE: AV).

The financial services powerhouse trades at a P/E ratio of just under 10. I consider that an attractive valuation for a company with a large, proven business in a market that is likely to endure, a large customer base, strong, and proven products. business mode when it comes to generating excess income.

All businesses carry risks and Aviva is no exception. Indeed, it cut its share four years ago. Besides, the dividend – now growing again – means that insurance shares currently yield 7.2%.

In an FTSE 100 company I find that very attractive. Indeed, it is almost twice the average of stocks in the blue-chip index.

Aviva strikes me as a share investors should consider buying with an eye to its long-term potential.