I’d buy these cheap FTSE 100 shares for passive income before the next bull market

Buying quality shares when they’re temporarily cheap makes even more sense to our writer when they offer great dividends for being patient.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Unilever plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Based on the yo-yo-ing of markets in the first few weeks of 2024, it looks like the next bull market may take longer to arrive than hoped. But this doesn’t stop me from buying cheap shares now and benefitting from the passive income they throw off in the meantime.

Here are three quality FTSE stocks I’d have no qualms buying today if I were able to find some spare cash down the back of the sofa.

Hated…for now

Luxury fashion firm Burberry (LSE: BRBY) is having an awful time. Sales have fallen as status-conscious consumers are being more careful with their cash.

The share price has followed suit, nearly halving in value in just one year. There’s nothing to say that things won’t get worse either.

I’m comfortable with being unable to predict the future. Every Fool should be. But I’m also optimistic that a desirable brand like this will overcome these short-term economic headwinds. The latter are sector-wide rather than company-specific, after all. A cut to interest rates may be the catalyst.

In the meantime, there’s a 3.8% dividend yield in the offing.

Throw in above-average margins and I think the biggest threat here is that it’s acquired by a deep-pocketed rival at a bargain-bin price.

Index laggard

Another blue-chip business that I’d have no issue taking a stake in is Ben and Jerry’s owner Unilever (LSE: ULVR). This is particularly true as the shares are currently trading on a lower valuation relative to earnings than their five-year average.

The dividend yield here is also 3.8% and Unilever has a good history of raising them. This isn’t to say the income will ever be guaranteed or that, again, past performance is somehow a guide to the future. So, spreading my money around the market is still the best way for me to reduce risk.

But unless I can see shoppers shunning brands they once bought habitually when the good times return (and, to date, economies have always bounced back after setbacks), this stock appeals. And I wouldn’t resist it.

A fall of 6.7% in the last year lags the FTSE 100 by some distance. But I believe Unilever will outperform the index over the next decade or so. For me, that’s the only time horizon that matters.

Future proof?

A final pick is from the mining sector — Rio Tinto (LSE: RIO).

Now, Rio is perhaps the exception here. Its valuation of 9 times forecast earnings is more in line with its long-term average. However, it’s still a lot cheaper relative to the market as a whole.

That’s worth bearing in mind considering demand for the sort of metals it digs up — copper, lithium and aluminium, to name just three — is forecast to jump as the world comes to rely more on renewable energy technologies.

A clear risk with Rio Tinto is that commodity markets are notoriously volatile. Exploration and production can also be expensive and subject to delays. Supporting this, the shares have swung between the 4,500p and 6,500p range for the last few years.

Then again, the chunky 6.9% forecast dividend yield feels like adequate compensation for this.

I suspect the next bull market will lead to fresh record highs being set.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry Group Plc and Unilever 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.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Fancy a 13.9% dividend yield? Consider these dirt-cheap investment trusts!

These investment trusts are trading at whopping discounts to their net asset values (NAVs). Here's why they could prove to…

Read more »

Investing Articles

If the market shut down for 10 years, I’d be happy to hold these 2 FTSE 100 shares

Our writer reveals a pair of FTSE 100 shares that he reckons are well set up to deliver strong returns…

Read more »

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »