Investing in dividend shares is the cornerstone of my strategy to earn a second income from the stock market. I try to focus on value investment opportunities. I want to own companies that could benefit from share price appreciation as well as focusing on the yields they offer.
Another key consideration for me is spreading my investments across different sectors and geographies. Diversification helps to manage my risks, so it’s always at the forefront of my mind.
In that context, let’s explore three dividend shares I own for passive income.
British American Tobacco
Tobacco stocks are renowned for their bumper dividend yields and British American Tobacco (LSE:BATS) is no exception with a 7.3% yield.
This Dividend Aristocrat boasts a higher yield than the FTSE 100 index average of 3.64%. Indeed, the business has enjoyed an unbroken 25-year dividend growth streak.
Granted, tobacco companies are controversial investments. There are moral questions about the industry, not to mention significant challenges from increasingly stringent laws to limit the public health impact of smoking.
However, I like British American Tobacco’s progress in its reduced-risk product range. Last year, revenue in the firm’s new categories climbed 37% to £2.81bn.
In addition, the company’s trading at a modest eight times forward earnings while operating cash conversion of 98.8% looks strong.
At £30.31, the British American Tobacco share price looks like a steal. I’m considering adding to my shareholding as a result.
Banking stocks have taken a tumble in the fallout from the collapse of SVB Financial Group.
With the Lloyds (LSE:LLOY) share price down over 10% compared to a month ago, I think this could be a good opportunity to increase my position in this FTSE 100 dividend share.
The shares currently sport a healthy 5% yield. If Silicon Valley Bank’s demise doesn’t prove to be a Lehman Brothers moment, I think the dip in the Lloyds share price could be short-lived.
Although it faces risk from exposure to a slowing UK housing market due to its position as the country’s largest mortgage lender, there are tailwinds benefiting the bank too.
For instance, the rising base rate helps to lift the bank’s net interest income. Plus, an improving macroeconomic outlook for the British economy suggests the number of bad loans on Lloyds’ books may not be as bad as feared.
Overall, with a forward price-to-earnings ratio of just 7.5, Lloyds shares seem cheap to me.
On the other side of the Atlantic, fast-food franchise McDonald’s (NYSE:MCD) needs no introduction. At present, the company offers investors a handy 2.3% dividend yield.
This S&P 500 stalwart is another Dividend Aristocrat that I own, but there’s more to the stock than its regular distributions.
The company’s Q4 results were largely encouraging. McDonald’s delivered a 12% increase in global sales, comprising double-digit growth across all segments.
What’s more, the business continues to expand with plans to open 1,900 new restaurants worldwide. Collaborations with celebrity endorsers, innovations to the menu, and a reduction in plastic waste are all key goals for the year.
Short-term inflationary pressures could limit further growth in the McDonald’s share price, but I remain bullish on the long-term outlook for the company.
The post 3 dirt cheap dividend shares I own for passive income appeared first on The Motley Fool UK.
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SVB Financial provides credit and banking services to The Motley Fool. Charlie Carman has positions in British American Tobacco P.l.c., Lloyds Banking Group Plc, and McDonald’s. The Motley Fool UK has recommended British American Tobacco P.l.c. 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.