The Motley Fool

I’d spend £3k today on these 2 cheap dividend-paying UK shares for a passive income

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.

Various denominations of notes in a pile
Image source: Getty Images.

Despite the recent stock market rally, a number of dividend-paying UK shares trade at cheap prices. As such, they could offer a worthwhile passive income at a time when interest rates are at historic lows.

Furthermore, they may deliver impressive capital returns as the FTSE 100 gradually recovers from the 2020 stock market crash.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Here are two examples of such stocks. While they face continued uncertainty in many of their key markets, their valuations suggest they could produce impressive total returns over the coming years.

A generous passive income opportunity relative to cheap UK shares?

The level of passive income offered by Vodafone (LSE: VOD) could make it a relatively attractive dividend option compared to other UK shares. The telecoms business currently has a dividend yield of almost 7%. That’s nearly 50% higher than the FTSE 100’s yield of 4.7%, and suggests the company also offers a wide margin of safety.

Its recent financial performance has been resilient and in line with company expectations. It continues to focus on improving customer loyalty levels. This could increase the size of its economic moat and lead to improving sales and profitability in the long run. It also plans to make further cost savings that could have a direct impact on its capacity to raise dividends in the coming years.

Vodafone’s stock price has fallen by around 18% since the start of the year. In doing so, it’s underperformed many other UK shares. However, its robust financial performance, attractive passive income and sound strategy could mean it delivers sound total returns in the long run relative to other dividend-paying stocks in the FTSE 100.

A cheap FTSE 100 opportunity with a generous yield?

Aviva (LSE: AV) could also offer superior passive income prospects compared to other UK shares. It has a forward dividend yield of nearly 8% for next year. Despite plans to make changes to its dividend policy, this could make it relatively attractive at a time when many FTSE 100 shares have postponed or cancelled theirs. Its high yield also suggests investors may be factoring in a reduction in shareholder payouts at some point in future.

The company’s recent results highlighted the major changes it’s looking to make to strengthen its financial performance. For example, it plans to invest in improving customer service to enhance its competitive position. It will also concentrate resources in markets where it already has a wide economic moat to improve its financial prospects. It also plans to strengthen its balance sheet and cut debt, which could reduce risk at an uncertain time for the economy.

As such, Aviva may offer long-term total return potential relative to other UK shares. Its refreshed strategy and passive income prospects may mean it delivers improving returns over the coming years.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Peter Stephens owns shares of Aviva and Vodafone. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.