Investing in dividend shares is one of my leading passive income ideas. Here are a couple such shares I would happily snap up for my income portfolio today.
Legal & General
Since the start of the year, shares in financial services provider Legal & General (LSE: LGEN) have fallen 21%. They are now 8% cheaper than they were 12 months ago.
But I think the company continues to be attractive. The coloured umbrella brand is well-known. Combined with a history stretching back over 190 years, that should help Legal & General attract and retain customers. The company has been consistently profitable in recent years, with post-tax profits last year topping £2bn. Despite that, the valuation looks cheap to me – at the moment, Legal & General trades on a price-to-earnings (P/E) ratio of seven.
That may be in part because investors are factoring in the risk that a worsening economy could lead to customers investing less, hurting revenues and profits at the firm. But I think its well-established reputation, large customer base, and proven business model could help the company navigate choppy waters in the future, as it has done in the past.
With a dividend yield of 7.4%, Legal & General is appealing to me from an income perspective too. That is why it is one of the dividend shares I would happily buy for my portfolio right now.
British American Tobacco
Another of those shares is British American Tobacco (LSE: BATS). It owns cigarette and tobacco brands including Lucky Strikes, Pall Mall, and glo. Its assortment of premium brands helps give the multinational giant pricing power. That can help it raise prices to keep profit margins strong, even in the face of challenges like cost inflation.
One key risk is the long-term decline in cigarette smoking. That could hurt sales and profits. Its pricing power may help the company mitigate the impact of falling sales to some extent. New areas such as modern oral tobacco are also helping the company sustain strong revenues, although so far such product lines have been much less profitable than cigarettes.
Cigarette volumes may continue to shrink, but British American Tobacco looks to me like it could still have a long road ahead of it. Its massive free cash flows help support a generous dividend that has risen annually for over two decades. No dividend is ever guaranteed to continue let alone keep rising regularly. But with its 6.4% yield, I would consider buying British American Tobacco today for my portfolio. With a P/E ratio of less than 12, I think it could offer me good value.
6%+ yielding dividend shares
Both of these dividend shares have some common characteristics. They benefit from the power of big brands. They generate large free cash flows that can help support dividends. Best of all, right now they both offer me a yield higher than 6%. I would think about buying them both to boost my income.