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I’m looking for above. FTSE 100 Value stocks to buy in October. Are these cheap dividend stocks too good to be true?
Persimmon
As a home builders investment perspective Persimmon (LSE: PSN ) has undoubtedly been gloomy this week.
The recent rally in the pound means the Bank of England may take emergency action to support the ailing currency. Markets are expecting interest rates to hover around 6% next year, a concern for the housing market.
I would argue that Persimmon Fresh’s share price decline now reflects this landscape. The price-to-earnings (P/E) ratio has fallen to a minimum of 5 times.
It wasn’t all bad news for homebuilders recently. In last week’s ‘minimum budget’ the Chancellor announced plans to raise stamp duty rates. Similar measures have been a big boost to property sales in recent years.
At the same time, government support for first-time buyers remains in place. A deposit unlocking scheme allows buyers to secure a property by putting down just 5%. Moreover, the highly competitive mortgage market continues to spur new home sales.
Persimmon’s recent share price decline has dropped its dividend for 2022 to a jaw-dropping 18%. For this reason I intend to add to my stock in October.
J. Sainbury
Supermarket J. Sainbury (LSE: SBRY ) meanwhile, offers a dividend yield of 6.4% for this financial year (to March 2023).
I like the steps the company is taking to embrace the growth of online grocery. Huge investment in recent years means Sainsbury’s can now fulfill 850,000 orders every week. This is the segment with the biggest straw as food shoppers are constantly switching from store visits to internet clicks.
Statista Analysts Online They think it will account for 13.2% of all food supermarket chain spending in 2026, up from 11.8% last year.
However, this is not enough to tempt me to buy Sainsbury’s shares today. The country’s food retailers are reeling from declining inflation and declining consumer spending. This is putting already weak profit margins under increasing pressure (J Sainsbury’s own underlying operating margin stood at just 3.4 per cent last financial year).
Such established operators have a choice. You can lower prices at the expense of margins. Or they can watch their customers flock to the budget chain. Aldi chief executive Gilles Hurley told the BBC the chain had added 1.5m customers in 12 weeks amid the cost-of-living crisis.
City analysts think earnings at Sainsbury’s will fall by 16% in financial 2023. However, I think they could be below forecast as headwinds intensify. And I think profits are likely to remain under long-term pressure as competition steps up in the online and physical worlds.
Despite its high dividend yield and low P/E ratio of 9.3 times, I’m happy to leave this FTSE 100 stock.