According to investment platform AJ Bell‘s latest Dividend Dashboard report, FTSE 100 stocks are on track to pay out £85bn in cash dividends to shareholders in 2022. That’s just below the all-time record of £85.2bn paid out in 2018, but ahead of £78.5bn paid in 2021. What’s more, this excludes one-off special dividends, so the final pay-out could be closer to the £100bn mark.
As a veteran value investor, I’m keen to grab as large a slice of this cash mountain as I can afford to buy. Hence, I’ve recently bought several cheap stocks for their bumper dividends — and also to boost my passive income, both now and for retirement.
Buying cheap stocks for high dividends
Thanks to falling share prices and rising dividend forecasts, AJ Bell expects the FTSE 100’s cash yield to be 4.2% this year. In total, the group expects 97 FTSE 100 firms to pay a dividend this year, versus 91 in 2021 and 85 in 2020.
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However, by screening the Footsie for high-yielding shares, I found 11 FTSE 100 stocks that yield more than 4.5% a year. What more, I know that dividends account for around half of the long-term returns from UK shares. That’s why I’ve recently bought a number of cheap FTSE 100 and FTSE 250 stocks for their market-beating dividend yields.
I’ve bought these six dividend dynamos
For the record, my wife recently bought these six FTSE 100 and ex-FTSE 100 stocks for our family portfolio:
| Lloyds Banking Group | Barclays | Legal & General Group | Royal Mail | Rio Tinto | ITV | |
| Share price (p) | 43.56 | 158.38 | 255.6 | 280 | 4,681.50 | 69.48 |
| 52-week high (p) | 56 | 219.6 | 309.9 | 536.8 | 6,343 | 127.19 |
| 52-week low (p) | 38.1 | 140.06 | 225.49 | 257.43 | 4,354 | 62.04 |
| 12-month change | -1.2% | -2% | 0.4% | -47.2% | -19.8% | -40.1% |
| Market value (£bn) | 29.8 | 26 | 15.3 | 2.7 | 78.2 | 2.8 |
| Price-to-earnings ratio | 5.8 | 4.5 | 7.9 | 4.6 | 4.3 | 7.5 |
| Earnings yield | 17.1% | 22.1% | 12.7% | 21.9% | 23% | 13.4% |
| Dividend yield | 4.6% | 3.8% | 7% | 6% | 12.3% | 4.8% |
| Dividend cover | 3.7 | 5.8 | 1.8 | 3.7 | 1.9 | 2.8 |
The primary reason why we bought these six stocks is that they all trade on undemanding fundamentals. In other words, they all looked ‘cheap’. The second reason is that they offer attractive dividend yields to patient investors like me. These range from 3.8% a year at Barclays bank to a whopping (but probably unsustainable) 12.7% a year at mega-miner Rio Tinto.
What’s more, as I’m expecting significant earnings downgrades for UK companies, I wanted to make sure that we had a significant margin of safety. Thus, all six dividend payouts are easily covered by trailing earnings. Indeed, dividend cover ranges from 1.8 times at investment manager Legal & General Group to 3.7 times at Lloyds Banking Group and Royal Mail.
Which stock would I buy today?
As very little has changed since we bought these stocks recently, I’d happily buy shares in all six companies right now. And that’s despite my worries regarding lower future earnings, red-hot inflation (soaring consumer prices), rising interest rates, a global recession, and the war for Ukraine. However, if I could chose only one of these stocks, then I think Barclays offers the best risk/reward ratio for my old blood!
