Like billionare investor Warren Buffett, I love to get maximum bang for my buck when buying shares. So I’m looking for top, cheap dividend stocks to buy to boost my passive income at low cost.
Here are a couple on my radar today: M&G (LSE:MNG) and The PRS REIT (LSE:PRSR).
Each of these UK shares trades on rock-bottom earnings multiples. Meanwhile, their corresponding dividend yields sail past the 3.9% average for FTSE 100 shares.
I’d buy them today with the intention of holding them for the next decade. Here is why.
M&G
Financial services providers like M&G have struggled more recently as consumer spending has plunged. This may remain a problem, too, if interest rates in the UK remain above recent norms and the economic downturn persists.
However, as a long-term investor, I’m hoping to buy this company’s shares as soon as I can. This is due in part to its exceptional all-round value. It trades on a forward P/E ratio of 9.7 times and carries a corresponding 9.5% dividend yield.
M&G has a significant structural opportunity to exploit over the coming decades. As the world’s elderly population grows, demand for the protection, wealth, and retirement products it specialises in looks set to rocket.
I’m also encouraged by the company’s decision last September to re-enter the booming bulk annuities market. Back then it sealed two transactions for a fee in excess of £600m.
I believe M&G — which has been going for 93 years — has the brand power and the scale to thrive during this demographic shift.
The PRS REIT
Okay, residential accommodation provider PRS REIT carries a higher P/E ratio than the broader FTSE 100 index. It currently sits at 19 times for the current financial year (to April 2024), well above the Footsie’s 11 times.
However, a price-to-earnings growth (PEG) of 0.6 indicates this could still be a top value stock to own. Any reading below one indicates that a stock is undervalued.
On top of this, the real estate investment trust (REIT) carries a healthy 5.1% dividend yield.
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Property stocks may continue to fall in price if interest rates remain at elevated levels. The PRS REIT has fallen 15% in value over the past 12 months as Bank of England hikes hit net asset values (NAVs).
But I’d buy this property stock for its exceptional long-term trading outlook. The UK’s chronic shortage of rental properties looks set to persist for years to come as the country’s population steadily grows. This could offset any plans at government level to supercharge build rates.
The shortfall looks set to be especially significant in PRS REIT’s family homes segment. Its focus on this part of the market allowed its like-for-like revenues to soar 11% in the final quarter of last year. This was up from 6% in the corresponding 2022 period.
Like M&G, I plan to invest in the trust when I next have cash to invest.
