2 great value stocks for passive income

These two value stocks offer yields in excess of 4% right now. So they could provide investors with substantial passive income.

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There are many benefits to investing in value stocks. One that’s often overlooked however, is the potential to provide substantial passive income.

Here, I’m going to highlight two FTSE 100 value stocks that currently sport attractive dividend yields. An investment in these shares could potentially deliver a solid stream of income in the years ahead.

Trading at a discount to the market

First up is Tesco (LSE: TSCO), whose shares have had a good run recently. This year, they’ve climbed from 224p to 266p, but they still nestle into value territory.

Currently, analysts expect the supermarket giant to generate earnings per share of 21.4p this financial year (ending 25 February 2024). At today’s share price, that gives the stock a forward-looking price-to-earnings (P/E) ratio of about 12.4, versus around 13 for the FTSE 100 index. In other words, Tesco trades at a discount to the market.

As for the dividend here, the projected payout for this financial year is currently 10.9 per share. At today’s share price, that equates to a yield of around 4.1%. What this means, in real-world terms, is that a £5,000 investment could deliver passive income of over £200 a year in the near term, although it should be noted that dividend forecasts aren’t always accurate.

Now, Tesco is a ‘safer’ value stock, to my mind. No matter what happens to the UK economy in the months and years ahead, Britons will need to buy food and essentials.

That said, there are risks here. Intense competition from the value supermarkets is one. Persistently high inflation is another. Both could have a negative impact on profits, dividends, and the share price. So they are worth keeping an eye on.

Attractive long-term growth prospects

The second value stock I want to highlight is Mondi (LSE: MNDI), the global packaging company with a focus on sustainable solutions.

Like Tesco, Mondi trades at a discount to the market. Currently, analysts are expecting the company to generate earnings per share of €1.25 (the company reports in euros) this year. That puts the stock on a forward-looking P/E ratio of about 11.9 at today’s share price and exchange rate.

Zooming in on the dividend, analysts forecast a payout of 68.5 euro cents for 2023. That translates to a yield of around 4.6% today, meaning a £5k investment could potentially deliver passive income of around £230 a year in the near term.

I think Mondi has an attractive long-term outlook. This is a company that stands to benefit from the growth of online shopping (nearly everything we buy online comes in cardboard packaging). It’s also a company that should benefit from the increasing focus on sustainability.

A risk here is that demand for packaging solutions is cyclical. In other words, demand rises and falls throughout the economic cycle. This adds some uncertainty in the near term.

For a long-term value investor though, I think Mondi is a solid stock pick.

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.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. 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.

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