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6 cheap shares I’d buy for high passive income

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

As an older investor (I was 55 earlier this week), my investing strategy is to buy into quality companies at reasonable prices. Also, as a value and dividend investor, I like being paid cash dividends as a reward for being a shareholder. Indeed, this dividend stream is my main source of passive income.

I love share dividends

Passive income is money I get without work or effort. What’s more, this income builds up 24/7, even while I sleep.

There are various forms of this income, including savings interest, bond coupons, rental income, pensions, and more. But by far my favourite is the cash dividends I receive by owning shares.

However, relying solely on dividends for my retirement would be risky. That’s because future payouts are not guaranteed, so they can be cut or cancelled at any time.

Also, not all London-listed companies pay dividends. Indeed, the vast majority of UK shares don’t. But most FTSE 100 firms pay them, typically quarterly or half-yearly.

Six shares for high dividend income

After trawling the FTSE 100, I found these eight high-yielding shares. Many of these companies are leaders in their respective fields, plus most are household names.

Company Aviva Barclays Legal & General M&G Rio Tinto Vodafone
Share price 407.2p 138.22p 231.39p 199p 5,325.7p 93.96p
Market value £11.4bn £22bn £13.8bn £4.7bn £88.6bn £25.3bn
One-year return -25.3% -17.8% -15.8% -11.8% -1.7% -24.4%
Five-year return -40.2% -34.0% -11.8% -11.6% +42.6% -53.4%
Dividend yield 7.6% 5.3% 8.3% 9.9% 7.6% 8.2%
Dividend cover * 4.1 1.9 * 1.5 0.8
* Not covered by historic earnings, so these payouts are uncovered

The smallest company in my table is asset manager M&G, which weighs in at under £5bn. At the other end of the scale, mega-miner Rio Tinto is a London super-heavyweight.

All six shares have lost ground over one year, with the worst-hit diving by around a quarter. Also, four out of the five are down over five years, with Rio Tinto the only winner over a half-decade.

Then again, as share prices fall, dividend yields rise — all else being equal, that is. And that’s why I love buying shares at a discount after steep price falls.

These six shares’ dividend yields range from 5.3% a year at Barclays to a whopping 9.9% at Rio Tinto. Across all six stocks, the average cash yield comes to 7.8% a year. To me, that’s a solid ongoing reward for taking on the risks of owning shares.

Which shares would I buy now?

I’d be happy to own all six shares for their market-beating cash payouts. Indeed, my wife has already bought five of these stocks for our family portfolio. The odd one out is M&G, which is firmly on my buy list.

As I already own stakes in five firms, I won’t buy more shares in these companies yet. Also, I won’t buy M&G now. I’d rather wait until the new tax year starts on 6 April. Even so, I’m convinced that these six shares will eventually prove to be winners for my passive income!

The post 6 cheap shares I’d buy for high passive income appeared first on The Motley Fool UK.

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Cliff D’Arcy has an economic interest in Aviva, Barclays, Legal & General Group, Rio Tinto, and Vodafone Group shares. The Motley Fool UK has recommended Barclays Plc and Vodafone Group Public. 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.