I’m racing to buy dirt-cheap income stocks before it’s too late

For investors like me who love buying FTSE 100 income stocks, 2022 has been a good year rather than a bad one.

While the US has plunged into a bear market, the UK index of top blue-chips has held firm. After years of underperformance when rocketing tech values transfixed investors, the FTSE 100 has swung back into fashion.

I want income stocks for Christmas

That’s because it is full of solid, dividend income stocks that have shown their resilience during a tough time. Investing is cyclical. For years investors scrambled to grab growth at all costs. Now they have swung back to value.

This year has thrown up plenty of buying opportunities. However, as the FTSE 100 ratchets upwards in the final weeks of the year, suddenly my favourite stocks look more expensive.

Back on 12 October, the FTSE 100 had slumped to trade around 6,826. At time of writing it stands at 7,538, a leap of just over 10% in less than two months. 

Some individual income stocks have shot up more than that. Household goods group Unilever is up more than 10% over the same period. Barclays has climbed 15%. Insurer Legal & General Group has soared 25%. I’m a bit sad because all three were on my watchlist. I was waiting until I had spare cash to buy them. Now I’ll have to pay more.

Yet I’m not too downcast because the shares I did manage to buy have also been flying, swept up by the recent recovery. Persimmon, Rio Tinto and Rolls-Royce have all posted double-digit gains since I bought them in October, even though I didn’t catch the bottom of the market (except maybe with Persimmon).

That’s the joy of buying cheap shares when they are out of favour. The FTSE 100 is now back in fashion, though, and I’m feeling a little FOMO (fear of missing out). I want to buy more income stocks, but are they still good value?

I’d still buy these FTSE 100 stocks

Happily, a quick glance at the price-to-earnings (P/E) ratios for Barclays, Legal & General and Unilever suggests they are still nicely priced. 

Barclays still trades at an incredibly cheap 4.2 times earnings (around 15 times is usually considered fair value). Plus its price-to-book ratio is a low 0.4, where a figure of 1 is thought to represent fair value.

Barclays yields 3.8% a year, which is solid but not spectacular. However, it is handsomely covered 6.2 times by earnings, and the forecast yield is higher at 4.6%. This looks like an opportunity begging rather than one missed. 

Similarly, Legal & General is valued at just 7.46 times earnings, despite its recent share price surge. It yields a dynamite 7.6%, covered 1.7 times by earnings. Unilever looks more expensive trading at 18.5 times earnings, but then Unilever always is relatively expensive. Today’s 4.2% yield is high by its standards and nicely covered 1.7 times.

So this still looks like a terrific time to buy FTSE 100 dividend income stocks. I’m keen to fill my boots, and just wish I had more cash to hand.