2 stocks I’d add to an ISA in June for passive income

This Fool is looking for new additions to his ISA. Here, he explores two cheap stocks he thinks could be smart buys today.

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I didn’t make the most of my ISA last year and I regret it. Therefore, this year I’ve vouched to try and max out the tax-free £20,000 limit that every UK investor is given to the best of my ability.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

I’m focusing on stocks that pay meaty dividend yields as I’m keen to start generating a passive income as early as possible in my investment journey.

If I had the cash, these are two stocks I’d consider picking up this month.

Burberry

I’ve been keeping a close eye on Burberry (LSE: BRBY) in recent months. The stock’s performance over the last year has been woeful. During that time, it’s down 51.7%. For comparison, the FTSE 100 is up 10.8% across the same period.

But I think Burberry shares, now trading on a price-to-earnings (P/E) ratio of just 14.1, could be too cheap to ignore. That’s considerably lower than its long-term historical average of around 23.

The catalyst for its downfall is the multiple profit warnings that the firm has given. In its latest update, it revealed that earnings for 2023 fell by 40%. Going forward, I’d expect the business to continue to struggle as consumers feel the squeeze on their pockets.

But I’m bullish on the long-term outlook. Burberry is an iconic brand and I’d expect demand to pick up again as the cost-of-living crisis subsides.

With a flagging share price, the stock now yields 5.9%. Even during the struggles of 2008/09, the Burberry share price nosedived yet management maintained the dividend. That gives me hope that its payout won’t be cut despite the challenges it faces.

I’m not expecting a quick turnaround with Burberry. I think its recovery will take years. But while I patiently wait for its share price to recover, I’ll happily receive some extra cash along the way.

BP

I already own shares in oil and gas behemoth BP (LSE: BP.), but I reckon now could be a chance for me to consider buying some more. Unlike Burberry, the stock has posted a strong performance in the last 12 months, rising 7.4%.

But even with that gain, I’d still be keen to pick up its shares. They have a P/E ratio of 11.7. That looks like fair value to me. What’s more, to go with that valuation, the stock boasts a 4.7% yield.

What I further like about BP is the plans management has to keep giving back to shareholders over the coming years. By 2025, it has the ambitious aim of buying back up to $14bn worth of shares. It’s on track to buy back $3.5bn in the first half of this year.

There are a few risks with BP. Firstly, it’s a cyclical stock. What’s more, the energy transition remains a constant threat as more and more emphasis continues to be placed on moving to a greener future.

But, according to experts, oil demand will keep rising until the end of the decade. There’s also uncertainty surrounding the UN’s initial 2050 net zero target. There is now talk that policy-makers may push it back.

The BP share price has dipped 6.4% in the last month. That means June could be a chance to increase my holdings. If I have the cash, that’s what I’ll be doing.

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.

Charlie Keough has positions in Bp P.l.c. The Motley Fool UK has recommended Burberry Group 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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