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As honorable as the performance of FTSE 100 it was 2024 so far, there are still plenty of stocks within the index trading at low valuations. I would consider taking some of these if I had the money to do so, especially if making passive income was my primary goal.
Long term shopping
Rio Tinto (LSE: RIO) is one example. Shares in the miner changed hands for nine times the forecast profits. That approach is below the average for the top tier of the UK stock market, although it is very similar to sector peers.
This 'discount' is not surprising. Demand for steel has fallen, especially from major buyers like China. This means lower profits for those holding the shiny things and helps explain the 17% drop in prices since the beginning of January.
On a brighter note, the dip in sentiments pushed the dividend yield up to 6.4%. It looks like it will be comfortably covered by the expected profit as well (at least, as things stand).
I also have one eye on the long-term vision. With copper and lithium likely to be in short supply as the world transitions to green energy, Rio Tinto may soon find itself in a purple patch. That would mean a significant increase in the amount of money returned to shareholders.
Great dividend stock
Throwing all my money into just one business is asking for trouble. For this reason, I would also be tempted to buy stock in a completely different company Legal & General (LSE: LGEN). It currently yields a monster 9.5%.
The rating is equally compelling. The shares trade at 12 times earnings, down to nine in FY25.
Now, analyst predictions should be taken with a grain of salt. Any unexpected economic downturn will send the people of the City back to their calculators.
I also note that this year's profit will not include that eye-catching profit. That could be a concern if it continues into 2025.
Then again, Legal & General has been remarkably consistent in increasing its remittances since the Great Financial Crisis. So, a big cut is not nailed down.
Combined with the fact that the aging population is increasingly aware of the need to plan for the future, I think the attractions far outweigh the risks.
A protective demon
The last share of the budget I'm thinking of buying is pharmaceuticals GSK (LSE: GSK).
That may seem like an odd choice. GSK's yield is 'just' 3.8% – much lower than the other two stocks. So what should (really) love?
Well, it goes back to what I touched on earlier. Spreading my money across different companies will ensure I'm not left out if the odd one out is forced to 'revise their policy' on benefits – that is, stop distributing them!
Since we all get sick from time to time, pharmaceutical firms are some of the most defensive stocks. This also makes the price-to-earnings (P/E) ratio of 10 a potential bargain.
Bringing new drugs to market is not easy or cheap and failure can be emotionally draining for a while. But the opposite is also true. The shingles vaccine Shingrixfor example, it has been the latest big money spinner for GSK.
Added to this, the yield mentioned above is still more than what I could get by holding the FTSE 100 tracker fund.
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