As an older investor, I like to watch my cash dividends come in. Additionally, as one investor put it: “The beauty of dividends is that you get paid whether the market is going up or not.” Also, in this age of ultra-low interest rates, I see dividends as a great source of passive income. Today the FTSE 100 The index has a dividend yield of 4.1% per annum. But not all Footsie shares pay dividends. So by buying more high dividend stocks, I can significantly increase my capital income. Here are three cheap stocks that I don’t own, but would buy today for their dividends.
Passive Income Share # 1: BHP
The first of my cheap stocks for passive income is the Anglo-Australian mining company BHP Group (LSE: BHP). At Monday’s closing share price of 2,019 pence, BHP has a market value of Â£ 104.8 billion, making it an FTSE 100 super-heavyweight. But at its highest level in 52 weeks , the BHP share price hit 2,505 pence on August 17, 2021. As a result, it is on sale today at almost Â£ 5 off (after a massive cash dividend paid to shareholders on September 21).
Currently, BHP stock is trading at a price / earnings ratio of 12.1 and a yield of 8.3%. In addition, this mega-cap stock offers a dividend yield of 10.8% per annum, better than the market. That’s over 2.6 times the cash yield of the FTSE 100. However, mining stocks are notoriously volatile, and this exceptional dividend may not be sustainable into 2022-24. Therefore, I would definitely not bet the farm by going all-in on this mega-miner’s shares today.
Dividend Share # 2: Imperial Brands
The second of my stocks to pump extra passive income my way is Imperial marks (LSE: IMB), a leading manufacturer of tobacco, cigarettes and smoking products. Last year Imperial sold more than 330 billion cigarettes in 160 countries. And on a global scale, cigarette sales increased in 2021. The major brands of the group include in particular Davidoff, Gauls, JPS, Kool, Where is, and Winston.
I fully understand why ethical investors would shy away from Imperial Oil stocks, but as a smoker myself, I know how profitable this 235-year-old company is. At Monday’s closing share price of 1,563 pence, Imperial is valued at Â£ 14.8 billion. At this level, the stock is trading at a price / earnings ratio of a low 5.2 and a whopping 19.1% earnings yield. What’s more, Imperial stocks offer a hefty dividend yield of 8.9% per annum. However, no dividend from the company is guaranteed and, due to Covid-19, Imperial reduced its payment by a third in May 2020.
High Yield Stock # 3: Legal and General
My third and final stock of passive income is Legal & General (LSE: LGEN). Present since 1836, L&G has built a legendary brand over the past 185 years. As a result, it is one of the leading providers of life insurance, savings and investment insurance in the UK. Today, L&G manages over Â£ 1 billion in wealth for more than 10 million customers worldwide. And with global equity markets rising almost unabated since the March 2020 lows, L&G fund assets and fees are booming.
At Monday’s closing share price of 284.9 pence, L&G was valued at Â£ 17 billion. Still, its shares are trading at a modest price-to-earnings ratio of 7.5 and an earnings return of 13.3%. In addition, the group’s generous dividend yield of almost 6.3% per annum is over 1.5 times the dividend yield of the FTSE 100. I would buy it today, although there are risks involved. – if global stock markets collapse in 2022, L & G’s assets, costs and profits could also collapse.
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Cliffdarcy has no position in any of the stocks mentioned. The Motley Fool UK recommended Imperial Brands. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.