As an older investor, I enjoy watching my cash dividends roll in. Also, as one investor put it: “The beauty of dividends is that you get paid, whether or not the market is up.” Furthermore, in this era of ultra-low interest rates, I see dividends as a great source of passive income. Today, the FTSE 100 index has a dividend yield of 4.1% a year. But not all Footsie shares pay dividends. Thus, buying more high-dividend stocks, I can significantly boost my unearned income. Here are three cheap stocks I don’t own, but would buy today for their dividends.
Passive income stock #1: BHP
The first of my cheap stocks for passive income is Anglo-Australian mining firm BHP Group (LSE: BHP). At Monday’s closing share price of 2,019p, BHP has a market value of £104.8bn, making it a FTSE 100 super-heavyweight. But at its 52-week high, the BHP share price hit 2,505p on 17 August 2021. Therefore, it’s on sale today at nearly £5 off (following a massive cash dividend paid to shareholders on 21 September).
Right now, BHP stock trades on a price-to-earnings ratio of 12.1 and an earnings yield of 8.3%. What’s more, this mega-cap stock offers a market-beating dividend yield of 10.8% a year. That’s more than 2.6 times the FTSE 100’s cash yield. However, mining stocks are notoriously volatile, plus this bumper dividend may not be sustainable into 2022-24. Hence, I certainly wouldn’t ‘bet the farm’ by going all-in on this mega-miner’s stock today.
Dividend share #2: Imperial Brands
The second of my stocks to pump extra passive income my way is Imperial Brands (LSE: IMB), a leading manufacturer of tobacco, cigarettes and smoking products. Last year, Imperial sold over 330bn cigarettes in 160 countries. And globally, cigarette sales have risen in 2021. The group’s big brands include include Davidoff, Gauloises, JPS, Kool, West, and Winston.
I fully understand why ethical investors would shun Imperial’s shares, but as a smoker myself, I know how profitable this 235-year-old firm is. At Monday’s closing share price of 1,563p, Imperial is valued at £14.8bn. At this level, the stock trades on a price-to-earnings ratio of a lowly 5.2 and a whopping earnings yield of 19.1%. In addition, Imperial shares offer a juicy dividend yield of 8.9% a year. However, no company dividends are guaranteed and, due to Covid-19, Imperial did slash its payout by a third in May 2020.
High-yield stock #3: Legal & General
My third and final stock for passive income is Legal & General (LSE: LGEN). Having been around since 1836, L&G has built a storied brand over the past 185 years. As a result, it is one of the UK’s leading providers of life assurance, savings and investments. Today, L&G manages more than £1trn of wealth for over 10m customers worldwide. And with global stock markets rising almost relentlessly since the lows of March 2020, L&G’s assets and fund fees are booming.
At Monday’s closing share price of 284.9p, L&G was valued at £17bn. Yet its shares trade on a modest price-to-earnings ratio of 7.5 and an earnings yield of 13.3%. Also, the group’s generous dividend yield of almost 6.3% a year is over 1.5 times the FTSE 100’s dividend yield. I’d buy it today, although there are risks — if global stock markets crash in 2022, then L&G’s assets, fees and earnings might also slump.
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.
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