The FTSE 100 rose nearly 1% yesterday (16 October), finishing the day at 8,329 points. This came after monthly inflation in the UK fell below 2% for the first time since 2021. The expectation is that interest rates will now head lower.
Consequently, the index is a whisker away from reaching a new all-time record. To achieve this, it’d need to surpass the 8,445 figure set in May.
Admittedly, that seems like tortoise stuff compared to the racing hare that’s the 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’s nearly doubled in five years!
Even if we include its generous dividends, the Footsie can’t light a candle to that performance. Yet, as things stand, I’d rather invest in FTSE 100 dividend stocks over the S&P 500 right now. Here’s why.
More value on offer
Due to the raging bull market, many US blue-chip stocks look overvalued. The index as a whole is trading on a price-to-earnings (P/E) ratio of around 28. That’s way above its historical average.
By contrast, the P/E ratio of the FTSE 100’s around 15.4. So there’s a massive value discrepancy.
Now, some of that’s due to the composition of the FTSE 100, which is dominated by mature companies in sectors such as energy, financial services, and consumer staples. These don’t tend to command high multiples, while some US tech giants have market-caps in excess of all listed UK firms combined.
However, some of the discrepancy’s due to extreme valuations, including Tesla. Shares of the electric vehicle (EV) pioneer are trading at an eye-watering forward P/E ratio of 72.
The FTSE 100 dividend yield‘s currently sitting at around 3.5%. The S&P 500 yield? Just above 1%.
Based on this, I’d say there’s a lot more value on offer in the UK right now.
High-yield stock
One cheap dividend share I like the look of right now is Aviva (LSE: AV.). The FTSE 100 insurance giant’s offering a 7.1% yield. That’s basically double the market average.
In recent years, the company’s sold off many overseas assets to focus on markets in the UK, Ireland and Canada. As a result, it’s strengthened the balance sheet and is much leaner.
In August, the firm reported group-wide growth and upped its interim dividend by 7%. Its private health insurance business is booming due to record NHS waiting lists.
A deep UK recession would present challenges, potentially leading to lower earnings. But with its reinforced balance sheet and vast experience, I’d expect the blue-chip insurer to weather any economic storm that blew its way.
While dividends are never guaranteed, analysts forecast a massive 8% yield for Aviva in 2025. And the P/E ratio’s just 10!
Foolish takeaway
To be clear, I’m not saying the S&P 500 won’t power even higher. As mentioned, it’s in the third year of a bull market and those have historically lasted 5.5 years, on average.
My portfolio has many S&P 500 stocks and I expect to own those for years to come. Yet with high-yield dividends on offer from cheap stocks like Aviva, my eyes are firmly fixed on the UK market right now.
This post was originally published on Motley Fool
