I’m thinking of buying these cheap passive income stocks right now

I’m searching for passive income stocks for my 2024 Stocks and Shares ISA. The big problem? There are too many dividends that I like the look of.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

What do we want from a passive income stock? First we want a good dividend to create the income. And it’s passive because, well, we don’t have to do any work once we’ve bought it.

But then I want a stock that I believe will keep its dividend growing, at least in line with inflation, for the next 10 or 20 years.

And I want it to look cheap on fundamental measures. I know a sustainable high dividend yield can imply that. But I want a chance of stock price appreciation too, as a bonus.

Should you invest £1,000 in Watches Of Switzerland Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Watches Of Switzerland Group Plc made the list?

See the 6 stocks

Insurance dividends

I’ve always liked insurance stocks, and I’m thinking of adding Legal & General (LSE: LGEN) to my current Aviva holding.

Created with Highcharts 11.4.3Legal & General Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL6 Apr 20204 Apr 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '252021202120222022202320232024202420252025150200250300350www.fool.co.uk

I am a bit heavy in financial stocks, and that’s a caution for passive income investors. Very often, we’ll see a lot of the biggest dividends coming from the same sector, and that tempts us to focus.

But I’d say diversification is more important than chasing the best dividends. So, if I do buy Legal & General shares, I’ll next look to diversify a bit more.

Irresistable dividend?

I find the forecast 9.2% dividend yield very hard to resist. Dividends from the sector can be volatile, and so can share prices. And that’s probably the biggest risk, which can make it easy to think a stock is cheap when maybe it really isn’t.

Still, I can handle short-term volatility, even if a lot of investors don’t like it.

And with forecasts suggesting the price-to-earnings (P/E) ratio could drop to under nine by 2026, there’s enough safety margin in the valuation. For me, at least, if not for everyone.

Sorely tempted

The BT Group (LSE: BT.A) dividend really does tempt me now. For years I’ve thought the company was paying out too much cash, while shouldering too much debt.

Created with Highcharts 11.4.3Bt Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

But since the board told us we’re passed the point of peak capital expenditure for broadband rollout, I’m seeing it in a new light.

The 5.5% yield isn’t the market’s biggest, and forward P/E multiples of around 10 aren’t the cheapest. But both beat the the FTSE 100 averages in their own ways.

Is there enough safety to beat the threat from debt? Is there more to come from the share price since it started rising this summer, or will the past five years of weakness continue?

I haven’t made up my mind yet. But BT is definitely on my passive income shortlist.

So many choices

I keep thinking of National Grid as possibly the best dividend stock I’ve never bought. I missed the big dip in May, though, as I didn’t have the cash ready.

Is the share price still cheap now the dividend has been diluted a bit? How safe are we from the chance it might happen again? Those are my big unknowns.

Maybe I should simply put more money into City of London Investment Trust, which has raised its dividend for 58 years in a row. But it might be fully valued compared to some of the other bargains out there.

Ah, so many dividend stock options, and not enough money to go round!

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Alan Oscroft has positions in Aviva Plc and City Of London Investment Trust 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »