These dividend shares yield 8.5% and 9% and I think they’re on sale!

This Fool plans to target dividend shares to start generating passive income. Here are two he thinks look dirt-cheap.

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It’s been a rough couple of years for markets. Trillions have been wiped off. And investor confidence has been seriously dented. But with depleted share prices comes one thing. And that’s higher yields. With that, I’m keen to snap up dividend shares.

FTSE 100 stalwart

With a yield of 8.5%, in first place on my watchlist is Legal & General (LSE: LGEN). I’m already a shareowner. And despite a 5% rebound in the last month, its price has been pulled back nearly 8% in the last 12 months. However, I’m not too worried about this.

Its impressive yield places it fifth on the FTSE 100 biggest returners right now. What’s more, its dividend has incrementally increased in the last 10 years. Last year, its payout was covered two times by earnings.

More recently, the business has made moves to increase how much it returns to shareholders, including a cumulative dividend plan set for completion in 2024. On track to return £5.5.bn to shareholders by next year, the plan fits more widely into Legal & General’s long-term financial ambitions of “delivering an attractive combination of income and growth.”

On top of this, the yellow umbrella is iconic, paying homage to its strong brand recognition. A price-to-earnings (P/E) ratio of just six also makes it look cheap.

It’s not been immune to the pressures the wider market has seen. Its assets under management have taken a hit, falling by 10%, according to its latest update. Volatile markets may continue to spook investors. As such, they may continue to withdraw their funds.

However, this is a short-term concern. In the long run, I think Legal & General is a smart play.

Tobacco industry powerhouse

A close second is British American Tobacco (LSE: BATS). Again, I already own the stock. But with it falling 23% in the last year, I sense a bargain.

It offers a whopping 9% yield, meaning only three stocks in the Footsie offer more. Like Legal & General, a P/E ratio of around six is a further reason to like it.

In current times, an investment such as this may be unpopular. Smoking is a habit that’s slowly fizzling out. Fresh laws from the UK government, which mean no child that turns 14 this year or younger will ever be able to legally buy cigarettes, have put further pressure on the company.

Yet despite this, I don’t think it’s all down and out. To start, the tobacco industry is still huge and will continue to be for some time. In 2022, over 600bn cigarettes were sold by the firm.

On top of that, through non-cigarette income streams such as its New Categories, the business has been diversifying. Revenues for these rose by over 25% for the first half of 2023. And with brands including the likes of Velo, the business is targeting £5bn in revenue from these products in the years ahead.

It may face pressures. But with an attractive valuation, an impressive yield, and plans for diversification, I see an opportunity.

If I had spare cash, I’d be looking to pick both of these stocks up. I think investors should consider them too.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has positions in British American Tobacco P.l.c. and Legal & General Group Plc. The Motley Fool UK has recommended British American Tobacco P.l.c. 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.

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