Which cheap stocks to invest in?

CashMoney

Hi, I currently own shares in high end stocks (Netflix, Tesla etc.) and wanted to invest in some cheap stocks that pay dividends as I only have Tesco in my portfolio that pays dividends. I am looking at Legal and General, Aviva and Centrica. What do you people think? Open to any other suggestions.
Thanks

bowlhead99

Lots of dividend-paying companies have cut or cancelled their dividends for this year, either due to regulator interference (UK banking sector) or prudence in the face of business interruptions from Covid.

Presumably you don't specifically need a dividend to be paid right now, but are just looking to invest in the type of company that would generally pay dividends in normal market conditions (and if not currently paying, have already had share price reductions on the basis that it will take a while for dividends to come back). If so, you have the choice of literally thousands of such companies around the world, and so the three you mention are 'nothing special', whether in terms of ongoing profitability or likely percentage yield for this year.

CashMoney

Hi bowlhead, I am thinking long term (after Covid) so yes not bothered about no payments in the immediate future. I only picked out those from a few articles I've read online that are "cheap" and pay (in normal circumstances) dividends. Looking for anything under £3 a share.

george4064

CashMoney said:

Hi bowlhead, I am thinking long term (after Covid) so yes not bothered about no payments in the immediate future. I only picked out those from a few articles I've read online that are "cheap" and pay (in normal circumstances) dividends. Looking for anything under £3 a share.

The actual price in pounds/price per share is no indication of how ‘cheap’ or ‘expensive’ a share is. A share that trades at 3p Is equally likely to be more cheaper/expensive on a price/earnings ratio than a different share trading at 3,000p. It all depends in the underlying variable in the particular ratio you are using to determine whether a stock is ‘cheap’ or not,

bowlhead99

CashMoney said:

. Looking for anything under £3 a share.

That doesn't make any sense as the price per share is simply a function of how many shares they have happened to have issued over the years and what the market believes the total value of the company now is.

For example L&G is a company which the market has valued at around £13.5bn based on its assets and prospects, and it happens to have about six million shares in issue, so the shareprice is £2.27.

Whereas Aviva is an £11.5bn company with about four million shares in issue so its share price is £2.93.

Lloyds Banking Group is a company with seventy billion shares in issue, so although it's more valuable than the two insurance companies above (over £21 billion), the shares only cost 30p each. 

Unilever is worth over £100bn and happens to have a share price of over forty quid, as they have about two and a half million shares outstanding. It doesn't mean that just because the share price is over a hundred times higher than Lloyds, its shares are over a hundred and forty times worse value for money than Lloyds. Simply, there are a different number of shares in issue.

Target Healthcare REIT is only worth half a billion and has about half a billion of shares in issue, so the shares trade for about a pound. HICL Infrastructure is a £3bn company with a bit less than two billion shares in issue, so they're £1.66. 

I hold all of the last 4 companies. An arbitrary rule like "they must be under £3 a share" would be completely stupid, so probably betrays a lack of understanding on your part.

If you invest £1000 in a company and the price is about £43 per share, you'll get about 23 shares. If the price is £1.66 you'll get about 600 shares. If it's about £0.30 you will get about 3333 shares. However, if any of those companies' shares double in value, your £1000 will turn into £2000 regardless of the quantity of shares you held. If any of them pay a 2% dividend yield on their current share price, you will get your £20 income from your £1000 investment, regardless of the quantity of shares held. 

You can't compare a company with another company just by looking at the absolute amount of pounds someone is currently willing to pay for a single share. If you wanted to invest equal amounts of money in Lloyds and Unilever you'd simply buy about 140x more Lloyds shares than Unilever shares.

steampowered

It appears that you are focussing part of your portfolio on tech stocks, and part of your portfolio on high yield stocks. 

That's a very high risk strategy. Tech stocks are higher risk. High yields generally imply the market thinks the dividend is going to be cut in future.

Prism

steampowered said:

It appears that you are focussing part of your portfolio on tech stocks, and part of your portfolio on high yield stocks. 

That's a very high risk strategy. Tech stocks are higher risk. High yields generally imply the market thinks the dividend is going to be cut in future.

Why do you say that tech stocks are higher risk? They have been one of the most reliable defensive stocks over the last two stock market crashes. 

benbay001

Is a "high end" stock one that trades at an extremely optimistic multiple of its earnings?

csgohan4

Prism said:

steampowered said:

It appears that you are focussing part of your portfolio on tech stocks, and part of your portfolio on high yield stocks. 

That's a very high risk strategy. Tech stocks are higher risk. High yields generally imply the market thinks the dividend is going to be cut in future.

Why do you say that tech stocks are higher risk? They have been one of the most reliable defensive stocks over the last two stock market crashes. 

Which particular tech stocks/funds are you holding so one can compare

CashMoney

Ok so its not the amount of shares I'm looking at for this one, just wanted to invest a small amount(max £500) in 1 or 2 companies whether that gives me 5 shares in 1 company and 300 in another.

bowlhead99

CashMoney said:

Ok so its not the amount of shares I'm looking at for this one, just wanted to invest a small amount(max £500) in 1 or 2 companies whether that gives me 5 shares in 1 company and 300 in another.

Well, as the £3 per share limit isn't a real or practical limit on investing £500 in something, all of the shares I mentioned pay reasonable dividends (or in LLOY's case, will likely go back to paying them in the future; I also hold the Lloyds preference shares which pay a decent dividend but with severely limited chance of capital growth).

If you're investing only £500 across one or two shares, your costs to buy and eventually sell will be high as a proportion of the investment value unless you're using a fee-free platform (which come with their own risks). And there are over ten thousand companies in the world, so it seems unlikely that whichever one you spend £500 buying will end up being the very best one you could have bought. Why not do what most investors do, and buy an investment fund, investment trust or ETF which allows you to invest collectively with other people into a broad portfolio?