In 2007, just before the global financial crisis erupted, I had an instant-access savings account paying 5% a year before tax. To double my money in this account using compound interest would take under 14.5 years. Today, with global interest rates near zero, the top no-notice UK savings account pays 0.7% a year. To double my money in this account would take a century. Thus, to boost my passive income, I buy high-yielding dividend shares. Here are three of my best stocks to buy for income in 2022 (which I don’t own but would happily buy).
Best stocks to buy #1: Rio Tinto
The first of my best stocks to buy is Rio Tinto (LSE: RIO), a world-leading, Anglo-Australian mining company. Rio mines various metals, including iron ore, aluminium, copper, and lithium. It operates 60 mining projects across 35 countries — generating enormous cash flows. At the current share price of 4,791.5p, Rio Tinto is worth £78.9bn, making it a FTSE 100 Goliath. Yet Rio stock trades on a lowly price-to-earnings ratio of a mere 5.5 and offers a handsome earnings yield of 18.1%. What’s more, its bumper dividend yield of 10.3% a year is almost 2.6 times the FTSE 100‘s 4% yield. This sort of cash yield sounds mouth-watering to me. However, I know from experience that mining stocks can be very volatile, thanks to movements in metals prices and currencies. Also, dividends are not guaranteed. Indeed, Rio last cut its payout in 2016.
Income stock #2: British American Tobacco
The second of my best stocks to buy for income is British American Tobacco (LSE: BATS). BAT — as it’s known in the City — is a leading producer of tobacco, cigarettes, and smoking products. While it may not be an ethical investment, BAT generates massive sales, earnings, and cash flow. At its current share price of 2,767p, the group is valued at £63.5bn — another Footsie heavyweight. Yet this stock trades on a modest price-to-earnings ratio of 10.3 and an earnings yield of 9.7%. At 7.8% a year, BAT’s dividend yield is almost twice the FTSE 100’s cash yield. However, the BAT share price has been volatile in recent years and is down almost two-fifths (-39.3%) over the past five years. Also, BAT has around £40.5bn of net debt on its balance sheet, which could weigh on future profits if/when interest rates rise.
High-yield share #3: Legal & General
The third of my best stocks to buy for 2022 is Legal & General (LSE: LGEN). L&G is a leading provider of life assurance, savings, and investments. It manages more than £1trn of wealth for over 10m customers. What’s more, L&G has been around since 1836, so I regard it as a very well-run company with an exceptional brand. At the current share price of 284.6p, L&G has a market value of £17bn. Right now, shares in this ‘boring, safe, and reliable’ business trade on just 7.5 times earnings, for an earnings yield of 13.3%. Again, L&G offers a market-beating dividend yield of 6.3% a year. However, L&G faces stiff competition from heavyweight asset managers, including several US mega-caps. Also, if asset prices were to plunge in 2022-23, L&G’s management income would likely take a big hit. Even so, I still see this solid stock as a bargain today!
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- How I’d invest £11.25 a week for a passive income
- 8.5+% yields! 2 FTSE 100 shares to beat UK’s inflation
- 2 inflation-beating FTSE 100 dividend stocks to buy
- 5 shares to buy now with £20,000
- I think the Legal & General share price is a top FTSE 100 stock
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco. 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.