In a few weeks, my wife and I land a windfall in the form of a tax-free lump sum. We intend to invest this one-off bonus into shares, focusing mainly on stocks that offer big dividend yields. Here are two UK shares we plan to buy soon to boost our passive income.
Income stock #1: Aviva
One of the first stocks we plan to add to our family portfolio is Aviva (LSE: AV) shares. At the current share price of 409.1p, this UK insurer and asset manager is valued at over £11.24bn.
Aviva shares haven’t had a great 2022/23, having fallen around 13.6% from their 52-week high of 473.7p, hit on 11 August 2022. Over one year, the share price is down 5.9%, while it has lost almost two-fifths (-39.9%) of its value over five years.
However, the above returns exclude cash dividends — and this passive income is what draws me to this financial stock. For the 2021 financial year, this stock paid a dividend of 22.05p a share, which then leapt to 31p a share for 2022.
At current levels, Aviva shares offer a cash yield of 7.6% a year. That’s more than twice the 3.7% yearly dividend yield on offer from the wider FTSE 100 index.
Now for the bad news: future dividends are not guaranteed, so they can be cut or cancelled at any time. Also, Aviva made a loss in 2022, so its current dividends are not covered by past profits.
Even so, I expect this Footsie firm to return to profit in 2023, which is why it is high on our list of shares to boost our passive income.
Dividend share #2: M&G
Savings and investment group M&G (LSE: MNG) dates back to 1931, so it is well on its way to its centenary. Today, it manages money for more than 5m clients across the world.
Like Aviva, the asset manager had a tough 2022, thanks to crashing stock markets and bond prices. However, the group should bounce back into profit this year, thanks to rising asset prices.
At the current share price of 198.74p, M&G is valued at around £4.7bn, making it a FTSE 100 minnow. Then again, this modest size could make it an attractive bolt-on acquisition for a much larger global asset manager.
Over one year, the shares have lost more than a tenth (-10.3%) of their value, while they are down 11.7% over five years (excluding dividends).
At current levels, the M&G share price is roughly halfway between its 52-week low of 159.3p (on 29 September 2022) and its peak of 229.9p on 2 March. To me, this suggests that this share might be in value territory.
Again, what draws me to this financial firm’s stock is its market-thrashing dividend yield. Right now, this comes to almost 9.9% a year, which is among the very highest in the FTSE 350 index.
Of course, this passive income could be cut, especially if M&G results disappoint this year. But as a reward for holding this stock for the long term, I see 9.9% a year as very generous indeed. Hence, we will buy M&G shares as soon as we are able!
