6.2% dividend yield! 2 FTSE 100 stocks to consider for a cheap passive income

These FTSE 100 dividend stocks are on sale right now! Royston Wild thinks they could be a great way for cost-conscious investors to make a passive income.

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FTSE 100 stocks have, broadly speaking, enjoyed a healthy price bump in recent weeks.

Yet the index is still a great place to pick up bargains. Years of investor worry over the economic and political backdrop mean many top stocks still carry bargain-basement valuations.

I believe the Footsie is a great place to buy stocks for dividends. Qualities like diverse revenue streams, huge competitive advantages, and strong balance sheets can make them ideal places to get a sustainable and large passive income.

What’s more, long-term share price underperformance means many of these carry substantial dividend yields.

2 stocks on my radar

I’ve been looking for companies that trade on forward P/E ratios below the Footsie average of 11 times. Dividend yields above the 3.5% index average is another quality I’ve been seeking.

The blue-chips I’ve found can be seen below. The average dividend yield across them stands at a whopping 6.2%.

CompanyForward dividend yieldForward P/E ratio
 Vodafone Group (LSE:VOD) 5.1% 10.4 times
 Aviva (LSE:AV.) 7.2% 10.7 times

I think these shares will provide a steadily-growing dividend over the long term too. Here’s why I think they’re worth a close look in June.

Big yields despite cut

Vodafone disappointed investors in early 2024 by finally announcing a widely-expected dividend cut. But it’s not all been bad news for investors.

Despite the rebasement — the telecoms firm has halved the dividend for this year, to 4.5 euro cents per share — the forward yield still comes in above 5%.

The business also declared its “ambition to grow it over time“. This is perhaps an unsurprising statement, but it’s one that could be made more likely as the firm invests more in the business to grow earnings. Plans include expanding its fibre and 5G networks, and supercharging sales at its impressive Business unit.

In the meantime, Vodafone has started a €2bn share buyback programme to ease the blow of lower dividends to investors. This follows the recent sale of its Portuguese assets. And the firm said another €2bn worth could be repurchased early next year when the sale of Vodafone Italy completes.

Competition is fierce in the telecoms sector, and Vodafone has a long history of underperforming its rivals. But given the cheapness of its shares and with its transformation accelerating, now could be a good time to buy the FTSE share.

Another top bargain

While dividends are never guaranteed, I’m not expecting the dividend on Aviva shares to be cut anytime soon. City analysts agree. In fact, the life insurance giant is tipped to grow annual payouts all the way through to 2026.

These healthy projections are built on the strength of Aviva’s balance sheet. The regular premiums it collects mean it’s highly cash generative. And so its Solvency II capital ratio stood at a brilliant 206% as of March.

So why aren’t all dividend investors flocking to the company? The downside is the potential struggle to grow earnings if economic conditions remain tough.

In this scenario, Aviva’s share price might stagnate or even fall, leading to disappointing shareholder returns despite large dividends.

Yet I believe this risk is baked into the cheapness of its shares. As well as trading on that low P/E ratio, Aviva’s price-to-earnings growth (PEG) multiple is 0.6.

Any reading below 1 indicates that a stock is undervalued.

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.

Royston Wild has positions in Aviva Plc. The Motley Fool UK has recommended Vodafone Group Public. 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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