I reckon 2023 has been one of the best years I’ve seen for buying cheap passive income stocks.
The UK stock market has beaten other forms of investment for more than a century. And there are some big FTSE 100 dividends out there.
Can they stay that way for much longer? Here’s are three, all from different sectors.
British American Tobacco
Tobacco is unpopular in the UK. And the British American Tobacco (LSE: BATS) share price seems to reflect that.
But the firm’s outlook is strong. Broker forecasts show earnings growing well, and the share price valuation falling.
We’re looking at a price-to-earnings (P/E) ratio of just 6.7 for 2023, dropping to around six by 2025.
With the share price down, the forecast dividend yield stands at 9.6%. An annual return like that could turn a £1,000 investment today into £6,250 in 20 years, and then add £600 per year to my passive income.
Analysts expect the dividend to keep growing too.
The long term, of course, depends on the future of tobacco products. And on how British American can adapt to new alternatives to old-style smoking. It’s certainly not without risk.
Legal & General
I’ve always liked the insurance sector as an investment. And today, it offers some big dividend yields.
The Legal & General (LSE: LGEN) share price has been under pressure. But it’s boosted the forecast dividend yield to 9.5%.
Plugging that into my long-term spreadsheet, it looks like it could turn every £1,000 invested today into £6,100 in 20 years. And that could pay an annual £580 into my passive income pot.
I don’t think there’s any threat to the long-term viability of Legal & General’s market. But I do expect business to be cyclical and the share price to show a bit of volatility.
The state of the economy doesn’t help, and adds more short-term uncertainty. And I think insurer share prices could stay low at least until interest rates start to fall.
Taylor Wimpey
Finally, I turn to Taylor Wimpey (LSE: TW.). The share price took a hit in 2022, but it’s been holding steady so far in 2023.
The forecast P/E valuation doesn’t make the stock look dirt cheap, not at 12 for this year.
Earnings for 2023 look like taking a hit, and forecast growth in the next two years only looks slow. But the forecast dividend yield is up at 8.8%.
It could come under pressure. House prices have been falling, and inflation has pushed construction costs up.
But if the 8.8% comes off, it would still be enough to grow £1,000 into £5,400 in 20 years. And add another £475 to my passive income stream.
Buy all three?
I’d say there’s a chance that any of these companies could be forced to cut their dividends. And that’s one risk we take if we invest for long-term passive income.
But I think all three are cheap. And I think they could stay cheap for a while yet. As a long-term buyer, I hope so.
