Categories
Coupons & Offers

Stock market bargains: I’d buy falling UK dividend shares in July

The FTSE 100 has posted a positive return so far this year, and trades around 7,130 points. However, this is below the level it was at in late 2019 before Covid struck. It’s also a fair way off the record highs in 2019 of 7,877 points. With this is mi…

The FTSE 100 has posted a positive return so far this year, and trades around 7,130 points. However, this is below the level it was at in late 2019 before Covid struck. It's also a fair way off the record highs in 2019 of 7,877 points.

With this is mind, I think there are still some UK stock market bargains to be had. As we head into July, I'm looking to buy some dividend shares that tick this box.

What makes a stock market bargain?

A stock market bargain can mean different things to different people. I'd classify something as a bargain if the share price is trading at a material discount to what I think the fair value is.

The beauty of investing is that my fair value is different to another investor. That's why the market functions, as in most cases there will always be a buyer for every seller of a stock. I'm particularly looking for bargains in relation to dividend shares.

These are companies that pay out regular dividends to investors. One of my investing aims is to generate passive income from my investments. This is why dividend shares play a part in where I look to invest.

I'd want to buy such shares when their prices are falling. This could allow me to buy the stocks at a discount to their fair value. If so, I'd be happy that I'd bought a stock market bargain.

A falling share price also helps boost the attractiveness of dividend shares as it increases the dividend yield. The yield measures the dividend per share in relation to the share price. If the share price is lower, then the dividend per share is a larger proportion.

It therefore increases that yield. The higher it is, the more passive income I get paid for the same amount of money invested. 

Falling dividend shares for July

By looking at share price movements over the past month, along with the dividend yield changes, I can find shares of interest. For example, the Polymetal International share price is down over 8% in a month.

As a result, this has increased the dividend yield to 6%, making it one of the highest yielding dividend shares in the FTSE 100. Another example is financial services company M&G. Due to the share price falling 7.88% in June, the dividend yield has risen to just under 8%!

I personally have a positive outlook for the business, and so see this as a good opportunity to pick up a stock market bargain. As long as the dividend per share doesn't change, I can lock in the yield through buying the share now. If the share price recovers to a fairer value, then I could gain from capital appreciation as well as the dividend element.

Of course, I have to bear in mind that a falling share price might be a sign of something wrong at the business. Overall, stock market bargains are subjective. Yet when I look for good value dividend shares, there are some great options for July, in my opinion.

jonathansmith1 has no position in any share mentioned.

The Motley Fool UK has no position in any of the shares mentioned.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro.

Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.