3 cheap shares I bought for high passive income

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:

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:

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:

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!