3 dirt cheap passive income shares I’d buy to target £1,780

Looking for the best passive income shares to buy on a budget? Here are three that our writer Royston Wild thinks investors should consider.

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The London Stock Exchange is awash with mega-cheap passive income shares. After years of underperformance, investors have a huge range of bargain stocks to choose from to make a second income.

Three of my favourites can be seen in the table below. Not only do they trade on rock-bottom price-to-earnings (P/E) ratios, each also carries the sort of dividend yield that could turbocharge their income flows.

CompanyForward P/E ratioForward dividend yield
 Triple Point Social Housing REIT (LSE:SOHO) 6.5 times 9.7%
 Bluefield Solar Income Fund Limited (LSE:BSIF) 7.2 times 8.3%
 TBC Bank Group (LSE:TBCG) 3.9 times 8.8%

Dividends are never guaranteed. But if broker projections prove right, a £20,000 lump sum invested equally across these shares would give me a £1,780 passive income over the next 12 months.

I’m confident too that these UK dividend stocks will provide a rising shareholder payout over time. Here’s why I’d buy them for my portfolio today if I had the cash.

Property giant

Real estate investment trusts (REITs) are famous for their frequently high dividend yields. This in large part reflects rules that they pay at least 90% of annual rental profits out by way of dividends, in exchange for certain tax advantages.

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.

Triple Point Social Housing REIT is a company I expect to deliver big dividends for years to come. It supplies social housing for vulnerable adults who have long-term care and support needs.

This is a market in which demand far, far exceeds supply. And so the REIT’s rents — which are also linked to inflation — should continue rising at a strong clip. Just over 60% of its properties had lifted rents at a weighted average of 6.1% as of 30 April, latest financials showed.

Remember though that Triple Point’s share price may remain under pressure if interest rates remain around current levels.

Sunny outlook

Bluefield Solar Income Fund has both defensive and growth qualities. The power its assets produce remains in high demand at all points of the economic cycle which, in turn, provides supreme earnings stability.

The fund also has significant growth potential as the energy transition continues. The company’s set up to invest at least 75% of its capital in UK solar assets and has discretion to invest the rest in other technologies like battery storage and wind power.

Bluefield Solar Income is vulnerable to changes in the weather than can impact power generation. But on balance, I think it could be a great buy for long-term passive income.

Too cheap?

My final choice is TBC Bank Group, a major player in Georgia’s fast-growing banking sector. Its share price has collapsed following the onset of civil disorder and political instability in the country.

While high risk, I think its rock-bottom valuation now makes it worth serious consideration. Its P/E ratio of below 4 times for this year is way, way below the ratios of UK-listed banks including Lloyds, Barclays and NatWest.

And it can be argued that TBC Bank has significant more growth potential than those FTSE 100 operators. Latest financials showed profits up 15.8% in the first three months of 2024.

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 no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking 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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