Passive income is a goal for many investors, including myself. I receive passive income in the form of dividend payments from stocks in my portfolio. These payments are typically paid on a quarterly basis but can be paid annually or even monthly.
I’m cautious of big dividends, as they might be unsustainable. But I see the current depressed position of the FTSE as a good opportunity to buy top stocks at discounted values. Moreover, when share prices fall, dividend yields go up. And the dividend yield is always going to be reflective of the price I pay for the stock.
So, let’s take a look at two passive income stocks trading at knockdown prices.
Lloyds
Lloyds (LSE:LLOY) was one of hundreds of UK-listed stocks that took a hit after the chancellor’s mini budget in late September. The bank has also fallen on reports that Prime Minister Truss’s new cabinet has looked at changing the Bank of England’s money-printing programme in an effort to avoid a £10bn payout to financial institutions.
But with the bank now trading for around 42p, the dividend yield has pushed upwards. As a result, buying at today’s price, I could expect an attractive 4.8% yield. That’s pretty good going and I’d expect it to be fairly safe right now. Last year Lloyds had a dividend coverage ratio of 3.75 — anything over two is considered to be pretty healthy. We might even see the dividend payments increase in the coming years.
Performance is also impressive. In July, the bank said that net income had surged 65% to £7.2bn for the six months to June 30. And this is likely to continue improving as net interest margins (NIMs) — the difference between savings and lending rates — keep rising on the back of higher BoE rates.
I appreciate that rampant inflation and a recession won’t be good for credit quality, but higher margins will more than make up for it. I already own Lloyds shares but I’d buy more today.
M&G
M&G (LSE:MNG) is a UK-based savings and investments firm. However, this is not an easy business to be in right now. Amid a cost-of-living crisis, rampant inflation, and volatility in the markets, attracting and retaining clients is a challenge.
The share price has also seen some considerable downward pressure since Liz Truss came into office. The stock is actually down 15% over the past month.
Despite this, M&G performed positively in the six months to June 30. M&G saw net client inflows of funds (outside its Heritage business) and net outflows of about 1% of assets under management. This isn’t bad considering economic conditions.
Adjusted pre-tax operating profits fell from £327m to £182m, but that reflects market conditions. Assets under management and administration decreased by £21.1bn to £348.9bn.
However, conditions will change. The market will improve and investors will be more incentivised to save and invest. And that’s why I see the current dip as a good time to buy. The stock also offers a handsome 10% dividend yield.
