Here's why I think the FTSE 100 could hit a new high in 2023

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Again in February, the FTSE 100 hit an all-time excessive of 8,047 factors.

All of us cheered the UK’s high index because it pushed previous the 8,000 stage, and puzzled how excessive it’d go by the top of the yr.

As I write, it’s again all the way down to 7,600 factors. However I believe we would nonetheless see a brand new excessive this yr. Let me share why I believe Footsie shares are too low cost now.

Dividend development

Dividends look set to develop this yr. It appears 2022 will find yourself with a small drop. However even then, it might put the index on a dividend yield of 4.2% for that yr.

That excludes particular dividends and share buybacks, and there have been a very good few of these too. In order that seem like a giant money return to me.

What’s extra, in line with funding companies supplier AJ Bell, FTSE 100 dividend funds for 2023 might are available as excessive as £84.8bn.

Once more, that’s with out specials. And there are not any buybacks included.

Share buybacks

We’ve seen buybacks of greater than £22bn introduced to this point this yr, so complete money returns might exceed £100bn.

That £84.8bn in abnormal dividends would come near the file yr of 2018. And in 2024, analysts suppose dividends will smash although the outdated file.

If the 2023 complete does hit £84.8bn, it might imply a yield of about 4.7%. Whole money returns, together with particular dividends and buybacks, might exceed 5.5%. That alone, I believe, makes the FTSE 100 look low cost.

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Earnings rises

What’s the prospect that dividends will match as much as these hopes? Regardless that dividends fell again a bit in 2022, the Metropolis thinks pre-tax revenue for final yr ought to be increased.

In addition they reckon 2023 will see one other rise, to set a brand new earnings file for the Footsie. And the place do they suppose the most important positive factors will come from?

That will be the monetary sector, which seems set to outstrip some other sector in 2023 revenue development.

Now, these forecasts are a good distance from sure. They’ve been marked down since late final yr, and which may nicely occur once more.

Prime FTSE 100 shares

However even when that is all a bit optimistic, a take a look at the valuations of some high shares makes me really feel bullish.

Take the banks, for instance. Lloyds Banking Group is on a forecast price-to-earnings (P/E) ratio of solely a bit over six. And Barclays stands at lower than 5.

Over amongst insurance coverage shares, we see Authorized & Common on a P/E of seven, and Aviva on 7.5.

These are in the identical sector that analysts suppose will lead the FTSE 100’s revenue development this yr.

Forecast threat

This all sounds good, although forecasts have a behavior of not all the time coming true. And if inflation and rates of interest keep excessive longer than hoped, then we could possibly be in for one more weak yr for UK shares.

Nonetheless, on stability, this all convinces me that FTSE 100 are undervalued, and that numerous them could possibly be nice buys for long-term traders.

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