I’m a big fan of passive income — unearned income that doesn’t come from working. But I get little income from savings interest, bonds, and property. Instead, I rely on share dividends for my passive income.
Three shares for big passive income
Our newest family portfolio includes these three shares with high passive income yields:
1) Aviva (6.7%)
Aviva (LSE: AV) is a huge UK insurer and a household name. After its shares plunged last summer, my wife snapped them up at a bargain price of 397p. Here’s how this stock stacks up today:
Current price
444.1p
52-week high
606.58p
52-week low
341.92p
One-year change
-23.2%
Market value
£12.5bn
Price-to-earnings ratio
9.1
Earnings yield
11%
Dividend yield
6.7%
Dividend cover
1.7
To me, Aviva shares still look inexpensive with their earnings yield of 11%, versus under 7% for the FTSE 100. Also, their dividend yield of 6.7% a year easily beats the Footsie’s sub-4% cash yield. And it’s covered 1.7 times by trailing earnings, which is a decent margin of safety.
Though Aviva shares have risen by 11.9% since we bought, I’d happily buy more for their market-beating cash yield — if I had enough spare cash, that is.
2) Legal & General
Legal & General Group (LSE: LGEN) is a leading provider of life insurance, savings, investments, and pensions. The group has over 10m customers and manages £1.3trn in assets.
My wife bought L&G shares last July at under 247p. During September and October, they tanked when investors were spooked by Liz Truss’s mini-Budget. But they look good value to me today, based on these attractive fundamentals:
Current price
256.9p
52-week high
293.7p
52-week low
191.37p
One-year change
-9.6%
Market value
£15.4bn
Price-to-earnings ratio
7.6
Earnings yield
13.2%
Dividend yield
9.3%
Dividend cover
1.4
At over 13%, L&G’s earnings yield is huge (almost twice the FTSE 100’s). This allows it to pay a whopping passive income of 9.3% a year in cash dividends. And though this payout is covered only 1.4 times by earnings, the group didn’t even cut these payments during 2020’s Covid-19 crisis. Again, if I had money to spare, I’d snap up more L&G shares at current levels.
3) Rio Tinto
Shares in Anglo-Australian mega-miner Rio Tinto (LSE: RIO) have been a roller-coaster ride in 2022/23. In June, my wife bought Rio shares at 5,204p and — sure enough — they dived, hitting their 52-week low on Halloween. But they have since rebounded strongly, as my final table shows:
Current price
6,040p
52-week high
6,406p
52-week low
4,424.5p
One-year change
9.5%
Market value
£103bn
Price-to-earnings ratio
6.7
Earnings yield
14.9%
Dividend yield
8.8%
Dividend cover
1.7
Despite having surged by more than a third (+36.5%) since 31 October, Rio Tinto shares still look pretty cheap to me. Their earnings yield of nearly 15% enables the metals miner to pay a dividend yield of 8.8% a year. Though this is one of the highest passive incomes on the London market, it’s still covered more than 1.7 times by earnings. That’s heading for rock-solid, in my opinion.
However, I know from experience that mining profits go in cycles, sometimes from boom to bust. Indeed, Rio Tinto did cut its dividend during 2016’s commodity crash. Even so, as a £103bn super-heavyweight, I expect Rio to ride out the next crash better than smaller miners!
The post 3 cheap shares I bought for high passive income appeared first on The Motley Fool UK.
Could Aviva grow your wealth after 50?
Quite possibly. But one share pick is by no means enough.
So, please go here now.
Discover ‘5 Stocks for Trying to Build Wealth After 50’.
All these share picks come from The Motley Fool UK’s top analysts.
They’ve done the hard research. Now, they believe these 5 shares could offer investors spectacular long-term potential. And this special investing report is yours, absolutely FREE.
Whatever your age, there’s no big secret to building wealth with shares. In a nutshell, we believe in buying:
15+ different shares
In strong, high-quality companies
And holding them for the long-term
This free report gets you started on the same journey.
Please don’t leave this website without it.
Claim your FREE copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#ffffff”, ‘color’, ‘#FFFFFF’);
})()
More reading
This 6.5% yield is one of the FTSE 100’s best. So what’s stopping me from buying this stock?
2 UK stocks I own for big dividends
3 stocks to generate a second income
Best British shares to buy in February
My Rio Tinto shares are soaring, but are still cheap!
Cliff D’Arcy has an economic interest in Aviva, Legal & General Group, and Rio Tinto shares. 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.