Image source: Getty Images
I FTSE 100 rose almost 1% yesterday (October 16), ending the day at 8,329 points. This comes after monthly inflation in the UK fell below 2% for the first time since 2021. The expectation is that interest rates will now drop.
So, the index is a whisker away from reaching a new all-time record. To achieve this, it will need to surpass the 8,445 figure set in May.
Admittedly, that seems like a tortoise compared to that running rabbit S&P 500. The US blue-chip index is up 22.5% since the start of January and is entering the third year of a bull market. It has almost doubled in five years!
Even when we factor in its huge advantages, the Footsie can't hold a candle to that performance. However, as things stand, I would rather invest in FTSE 100 dividend stocks than the S&P 500 right now. Here is the reason.
Value beyond supply
Because of the bull market, many US blue-chip stocks look overpriced. The overall index trades at a price-to-earnings (P/E) ratio of about 28. That's more than its historical average.
In contrast, the P/E ratio of the FTSE 100 is around 15.4. So there is a big price difference.
Now, some of that is due to the composition of the FTSE 100, which is made up of mature companies in sectors such as energy, financial services, and the consumer base. These rarely command high multiples, while some US tech giants have market caps greater than all UK listed firms combined.
However, some of the discrepancies are due to overestimation, incl Tesla. Shares of electric vehicle (EV) pioneers trade at an eye-watering forward P/E ratio of 72.
This FTSE 100 Limited company pays dividends at 3.5%. S&P 500 yield? Just over 1%.
Based on this, I would say that there is more value on offer in the UK right now.
High yielding stock
One cheap dividend stock I like to look at right now Aviva (LSE: AV.). The FTSE 100 insurance giant offers a yield of 7.1%. That's double the market average.
In recent years, the company has sold many of its overseas assets to focus on the UK, Ireland and Canadian markets. As a result, it strengthens the balance and becomes less severe.
In August, the company reported group-wide growth and increased its interim dividend by 7%. Its private health insurance business is thriving thanks to record NHS waiting lists.
A recession in the UK will present challenges, which could lead to lower incomes. But with its strengthened balance sheet and vast experience, I would expect the blue-chip insurer to weather any economic storm that blows its way.
Although earnings are never guaranteed, analysts are predicting a whopping 8% yield for Aviva by 2025. And the P/E ratio is only 10!
A silly takeaway
To be clear, I'm not saying the S&P 500 won't get even stronger. As mentioned, it's the third year of a bull market and those have historically lasted 5.5 years, on average.
My portfolio consists mostly of S&P 500 stocks and I expect to own them for years to come. However with high yield shares available in cheap stocks like Aviva, my eyes are on the UK market at the moment.
Source link
