My wife and I have been on a spending spree for the past four weeks. But instead of splurging on consumer goods, we’ve been buying cut-price shares. In particular, we’ve been snapping up income shares: those that offer market-beating dividend yields.
Since 29 June, we’ve bought nine new UK stocks for our family portfolio. Because we bought three of these income shares very recently, I can’t write about them yet (due to very sensible Fool restrictions on market timing). However, here are six other high-yielding stocks in the FTSE 100 and FTSE 250 indices that we now own to generate extra passive income.
Six income shares we bought for their cash yields
In order to boost the dividend income paid by our portfolio, we bought these six stocks recently (in A-Z order):
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
| Company | Barclays | ITV | Legal & General | Lloyds | Rio Tinto | Royal Mail |
| Type of Business | Bank | Broadcaster | Insurer | Bank | Miner | Post |
| Share price | 156.88p | 71.3p | 251.8p | 43.53p | 4,823.5p | 288.3p |
| 52-week high | 219.6p | 127.19p | 309.9p | 56p | 6,293.28p | 531.4p |
| 52-week low | 140.06p | 62.04p | 225.49p | 38.1p | 4,319.87p | 257.43p |
| 12-month change | -7.4% | -41.2% | -5.2% | -6.5% | -21.1% | -45.3% |
| Market value | £26.3bn | £2.9bn | £15.2bn | £30bn | £81.4bn | £2.8bn |
| Price/earnings ratio | 4.6 | 7.7 | 7.8 | 5.9 | 4.5 | 4.8 |
| Earnings yield | 21.8% | 12.9% | 12.8% | 17.0% | 22.3% | 20.9% |
| Dividend yield | 3.7% | 4.6% | 7.2% | 4.6% | 11.9% | 6.8% |
| Dividend cover | 5.8 | 2.8 | 1.8 | 3.7 | 1.9 | 3.1 |
This mini-portfolio includes two leading banks (Barclays and Lloyds Banking Group), the leading terrestrial commercial broadcaster (ITV), a top insurer and asset manager (Legal & General Group), a global mega-miner (Rio Tinto) and the provider of UK universal postal services (Royal Mail).
What do these six stocks have in common?
So what did we see that was appealing here? First, they’re all members of the FTSE 350 index — four FTSE 100 firms and two former Footsie groups (ITV and Royal Mail). That’s because I like the comfort and security of finding value among large-cap and mid-cap shares.
Second, based on their price-to-earnings (P/E) ratios, all six income shares seem cheap to me. Their earnings multiples range from below five to under eight times. By comparison, the FTSE 100 has a P/E of around 16.7.
Third, they all offer generous dividend yields to shareholders. These cash yields range from just under 4% a year to almost 12%, with an average of 6.5%. Meanwhile, the Footsie’s yearly cash yield is around 4%. What’s more, these payouts are all covered comfortably by earnings, with dividend cover ranging from just below two to almost six times. That’s the kind of margin of safety I like.
We bought despite global worries
Of course, as an investor, there’s plenty for me to worry about at present. Red-hot inflation has caused a cost-of-living crisis. To squash future inflation, interest rates are rising around the world. This trend is already slowing global economic growth and could even trigger a prolonged recession. And the war for Ukraine rages on and on.
But it’s precisely these anxieties that drove us to buy more income shares. To my mind, their high dividends should help to offset higher inflation, while providing some cushion against falling stock prices. And that’s why we’ll continue to buy more shares in the weeks and months to come.
