3 cheap shares to buy now for income

Our writer is considering three UK shares to buy now for his portfolio that offer him an average yield of over 7%.

| 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.

pensive bearded business man sitting on chair looking out of the window

Image source: Getty Images

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.

I have been looking for cheap shares to buy now to boost my passive income streams. Here are three I am considering at the moment for my portfolio.

Direct Line

In the past year, insurer Direct Line (LSE: DLG) has seen its shares fall by 13%. But from a buy-and-hold perspective, I think the lower share price offers me an attractive entry point for the company. Its 8.4% yield means that if I put in £1,000 today I would hopefully earn £84 in dividends next year.

Last week the company announced a 2.7% increase in its dividend alongside plans to buy back up to £100m of its own shares. I take this as a sign of management confidence in the business performance. Insurance is all about risk, of course, and like all shares these have some risks of their own. For example, a surge in secondhand car prices could make insurance payouts costlier and hurt profits.

But with its red telephone brand and over 14m policies in force, I think Direct Line can continue to benefit from resilient demand in the insurance market. I would consider it among cheap shares to buy now for my ISA.

British American Tobacco

While British American Tobacco (LSE: BATS) is up 13% over the past year, it has fallen 12% in the past month. I do not know if it will keep getting cheaper. But what I do know is that the share yields 7.2% and raised its dividend again this year, as it has done annually for over two decades.

The dividend is supported by large cash flows at the tobacco producer. Last year, it generated £2.5bn of free cash flows even after funding its dividend. Long term there are cash flow risks, though. The company has £36bn of net debt, and paying that off could eat into earnings. Another risk is falling cigarette use, but new products like modern oral and increased pricing on cigarettes could help sustain profitability. That could be good news for future dividends.

Vistry

Housebuilder Vistry (LSE: VTY) has slid 26% from its highs last year, although in the past year overall the fall has been 6%. That means that the company now trades on a price-to-earnings ratio of 9, while offering a dividend yield of 6%.

Housebuilding is cyclical and there are some risks to profits here, from inflation of material costs and labour to the possibility of a housing market downturn. But the company’s yield means I see Vistry among cheap shares to buy now to boost my income. Given the cyclical nature of housebuilding, I would need to buckle up for the long term. If the property market tumbles, housebuilders could see their share prices deflated for years.

By diversifying across a range of shares, I can reduce my risk though. These three UK shares offer me exposure to different sectors. They also offer my portfolio an average dividend yield of over 7%.

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.

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco. 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

Young female analyst working at her desk in the office
Investing Articles

Here’s how I’d target a £23k second income with £300 a month

If I was building a shares portfolio today, here's how I'd go about it. With these strategies I stand a…

Read more »

Investing Articles

Tesla stock, MicroStrategy: here’s what Hargreaves Lansdown investors bought last week

MicroStrategy and Tesla stock were among the most popular investments last week as Donald Trump boosted markets with his election…

Read more »

Investing Articles

1 AI stock worth considering now Stocks and Shares ISAs are safe!

The Budget brought good news for those of us with Stocks and Shares ISAs! I’ve been looking at this one…

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Growth Shares

Up 41% in 1 year, I’m buying more of this growth trust for my Stocks and Shares ISA

A great performance over the last 12 months has pushed our writer to buy more of a very exciting investment…

Read more »

Investing Articles

3 reasons to like the Legal & General dividend

Christopher Ruane explains a trio of reasons why he likes the Legal & General dividend as a source of passive…

Read more »

Investing Articles

Down 16%+, here’s 2 unloved FTSE 100 shares for savvy investors to consider!

These FTSE 100 shares have slumped in the past six months. Royston Wild thinks long-term investors should pay them close…

Read more »

Girl buying groceries in the supermarket with her father.
Investing Articles

Down 15%, but the FTSE 100’s J Sainsbury has a dividend yield over 5%!

Is it time to consider shares in FTSE 100 supermarket chain J Sainsbury for a potentially enduring stream of chunky…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
US Stock

Should I buy Palantir stock for my ISA after a 200% gain?

Edward Sheldon has cash to deploy within his ISA. Should he buy Palantir shares for more exposure to the artificial…

Read more »