10.8% dividend yield! 2 cheap stocks to consider for a £2,060 passive income

Many of us invest for a passive income, and these two stocks could be among the best out there for savvy income-hungry investors.

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The global stock market continues to be packed full of exciting investment opportunities that can provide us with a passive income.

In the UK, years of underperformance have pushed dividend yields sky-high, and that’s great for dividend-hungry investors. But there are pockets of really interesting opportunities if we look further afield.

So, here are two cheap stocks with huge dividend yields that I’ve bought for my portfolio.

CompanyPrice-to-earningsDividend yield
Nordic American Tankers (NYSE:NAT)7.411.2%
Phoenix Group (LSE:PHNX)1110.4%

These are trailing dividend yields, but if they hold steady or increase over the next year, £20,000 of cash could deliver £2,060 of passive income annually.

What’s more, I believe both these businesses can grow steadily over the medium term. Here’s why I think savvy investors should take a closer look at these two companies.

Booming sector

The tanker sector is booming, and Nordic American’s Q4 results — released in February — were very strong. The company’s net profit for the quarter ($15.1m) was more than twice the net profit from the third quarter of 2023.

Nordic American is set to release its Q1 report on 29 May, and it could be another big one. A drought in the Panama Canal and the rerouting of vessels due to Houthi attacks in the Bab-el-Mandeb Strait have caused leasing rates to shoot up. In Q4, the cost of leasing a Nordic American Suezmax tanker averaged $41,580 per day. I’d expect something similar in Q1.

Nordic American’s management has previously struck a cautious tone, highlighting that rates will fall when these two issues subside. But that hasn’t happened yet.

Moreover, high leasing prices reflect a supply and demand imbalance in the sector. Experts had been warning for years that there weren’t enough new vessels entering the market. As such, the global tanker fleet is the oldest it’s been in living memory. Just two supertankers are set to join the global fleet in 2024 — the fewest in nearly four decades. We’re at the start of a supercycle.

We all need insurance

The insurance sector has underperformed in recent years as inflation introduced new challenges for insurers. Companies, including the FTSE 100‘s Phoenix Group, were forced to continually increase the cost of premiums as insurance claims jumped with inflation.

However, inflation is settling down, and margins in the insurance sector are improving. A recent report indicated an eight-year high for UK insurance broker profit margins. Why is that? Well just consider car insurance. The average cost of UK car insurance premiums jumped 34% from Q4 2022 to Q4 2023.

The outlook for the group, which owns famous brands such as Standard Life and SunLife, is pretty strong too. The company expects operating cash generation to rise by around 25% to £1.4bn by the end of 2026. Meanwhile, analysts expected earnings to grow 39% a year to end-2026.

Debt is one concern, however. It has a little more leverage than its peers, and that could be a worry for some investors.

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.

James Fox has positions in Nordic American Tankers Limited and Phoenix Group Holdings Plc. The Motley Fool UK has no position in any of the shares mentioned. 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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