I’m buying these 2 dirt-cheap shares for my income portfolio

Since Russia invaded Ukraine on 24 February, markets have been volatile for two weeks. Even so, I’m buying these two cheap shares for their passive income.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After Russia invaded Ukraine on 24 February, the volatility of global stock markets surged. Since then, the FTSE 100 index has been as high as 7,499.33 points and as low as 6,787.98. That’s a range of 711.35 points — a swing of 10.5% — in the 11 trading days to Thursday. As I write, the index stands at 7,164.12 points, 523.15 points (-6.8%) below its 52-week high. For a long time, I’ve argued that the FTSE 100 is packed with cheap shares. After recent price falls, I see plenty of blue-chip stocks dumped into Mr Market’s bargain bin. Here are two dirt-cheap shares that I don’t own, but would happily buy today for my family portfolio.

Cheap shares: 1. Rio Tinto

At their 52-week high on May 10 2021, Rio Tinto (LSE: RIO) shares hit 6,587.69p. As I write, the global mining Goliath‘s stock trades at 5,542p. That’s a drop of more than £10 (-15.9%) in 10 months. This values the Anglo-Australian miner of iron ore, aluminium, copper, and lithium at £93.4bn, making it a FTSE 100 super-heavyweight. Though metals prices have surged in 2021-22, Rio’s share price is down 3.4% over the past 12 months. I think its cheap shares offer compelling value, especially for income investors like me.

Thanks to its soaring cash flow, profit, and earnings, Rio shares trade on a price-to-earnings ratio of 5.6 and an earnings yield of 17.8%. What’s more, they offer a dividend yield of 10.4% a year — around 2.6 times the FTSE 100’s 4% cash yield. In 2021, Rio’s total dividend pay-out was $16.8bn (£12.6bn) — more than most UK companies are worth. Though I know from experience that mining stocks can be highly volatile and risky, I plan to buy Rio Tinto’s dirt-cheap shares for my family portfolio.

Income stocks: 2. M&G

The second of my cheap shares lurking in the FTSE 100 index is M&G (LSE: MNG). M&G was founded in 1931 and launched the UK’s first mutual fund that year. Once part of the mighty Prudential group, asset manager M&G was listed in London in October 2019 as a separate company. At their 52-week high on 1 June 2021, M&G shares peaked at 254.3p. As I write, they trade at 221.7p, down 32.6p (-12.8%) from this peak. This values the group at £5.8bn — a mere minnow when compared to its biggest (mostly US) rivals.

Over the past 12 months, the M&G share price has crept up by just 1.1%. To me, this suggests that this stock remains in bargain territory. Looking ahead, these cheap shares trade on a forward price-to-earnings ratio of 10 and a matching earnings yield of 10%. But what really draws me to this stock is its market-beating dividend yield of almost 8.3% a year. That’s more than twice the cash yield of the wider FTSE 100. Of course, share dividends are never guaranteed, as they can be cut or cancelled at any time. Even so — and despite stock markets being shaky lately — I will soon add this dividend dynamo to my family portfolio for its passive income!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

Bronze bull and bear figurines
Investing Articles

US stock market: the winners and losers one week after the election

Last week's US election spurred big moves in the US stock market, with some global indexes making record highs. Here's…

Read more »

Investing Articles

The latest FTSE dip has handed me a brilliant opportunity to buy cheap shares!

Harvey Jones is on a mission to take advantage of the recent FTSE 100 dip by going shopping for cheap…

Read more »

Investing Articles

After falling 13% this ultra-high-income share yields 7.25% with a P/E of just 10.1!

Harvey Jones couldn't resist buying this FTSE income share. He thought it looked great value in September and it's even…

Read more »

The flag of the United States of America flying in front of the Capitol building
Growth Shares

2 FTSE 100 stocks that could soar while Donald Trump is US President

These two FTSE 100 companies have a lot of exposure to North America. So, they stand to benefit from a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 of savings? Here’s how I’d aim to turn that into £5,832 a year of passive income!

Smaller initial investments in high-yielding stocks can generate much greater passive income over time, especially if dividend compounding is used.

Read more »

Investing Articles

Will the Lloyds share price drop to 50p in 2025 and should I buy the stock if it does?

The Lloyds share price has fallen 12% in six weeks, making the stock cheaper on a price-to-book basis than NatWest.…

Read more »

Investing Articles

As BT’s share price drops 8%, should I buy more?

BT’s share price looks a bargain to me on several key stock measurements, offering a high yield as well, supported…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

After falling 87% in 45 months, could Dr Martens be a winning value stock?

Ahead of its half-year results due to be released later this month, our writer considers whether this FTSE 250 icon…

Read more »