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Every now and again, I look at some FTSE 100 shares and shake my head. I just can’t believe the attractive passive income on offer. With that in mind, here are three cheap dividend shares I’d scoop up today if I had spare cash to invest.
Resilience
Shares of insurers Legal & General (LSE: LGEN) and Aviva (LSE: AV.) still haven’t fully recovered from the US banking crisis in March. Indeed, both stocks are more than 10% lower than they were before Silicon Valley Bank collapsed.
One reason for the drop is that investors fretted over the prospect of unrealised bond losses at insurance firms. The inverse relationship between bond prices and interest rates means the recent sharp rises in rates have lowered the value of fixed-rate bonds.
Put simply, as interest rates go up, the value of older bonds goes down. And this can impact an insurance company’s balance sheet and capital reserves.
However, there is no suggestion that either firm needs to raise funds and sell these bonds at a loss. Therefore, they will most likely be held till maturity.
Meanwhile, earnings at both firms have remained resilient, resulting in cheap forward P/E multiples of 9.5 for Aviva and 9.7 for L&G shares. And incredibly juicy forward-looking dividend yields of 8.6% and 9.3%, respectively, for 2024.
Of course, those high yields aren’t there for no reason. If markets tumble further due to a weakening global economy, the investment portfolios of both insurers would fall in value. This is something for investors to consider, though I think the passive income potential here remains alluring.
Thinking long term
Glencore (LSE: GLEN) is another lowly-valued stock I’d buy today. The miner’s share price is down 17% year to date, mainly due to falling commodity prices as China’s economy shows signs of weakening.
Additionally, the Chinese property market is also weighing on the nation’s growth outlook. And if that massive market collapses, then demand for metals linked to construction could fall off a cliff. In that scenario, Glencore’s share price would likely have further to fall.
However, I think these concerns open up an opportunity to buy this stock for both income and a potential share price rebound. That’s because China is likely to continue ramping up stimulus measures, keeping demand for commodities relatively stable.
Plus, the nation’s increasing spending on clean energy — a multi-decade process — should significantly lift overall consumption of materials linked to the green transition. These include copper and aluminium, both of which Glencore supplies.
Another positive is the ongoing resilience of the US economy, which is set to benefit long term from massive federal spending on infrastructure.
Glencore stock is dirt-cheap on a forward P/E ratio of around 8.4, which is below the Footsie average. And it carries a 7.5% dividend yield for 2023, which is way above the market average. The payout could even be cut and still offer attractive passive income.
This is a share I’d buy today to own for the next decade and beyond. Swiss bank UBS reckons the company could quadruple its earnings from its battery recycling business over the next five years.
Plus, Glencore also trades commodities, meaning it has multiple ways to win during the planet’s transition to a greener future.
