I think buying dividend shares is a great way to generate a healthy passive income. And I believe recent stock market volatility makes buying these wealth generators a pretty good idea right now.
The dividend yield on many top-quality UK shares has shot higher as they’ve fallen in price. The panic that’s engulfed the markets in 2022 also means many of these income heroes currently carry rock-bottom valuations.
Here are two dirt-cheap dividend stocks I’m considering buying for my own portfolio.
I think Vodafone Group (LSE: VOD) is a perfect investment for today. People and businesses need to stay connected through their phones, tablets and computers at all points of the economic cycle. This gives telecoms companies like this the means and the confidence to pay dividends, even during downturns.
I also believe Vodafone is a shrewd income stock to buy in this period of high inflation. Under current rules, the business is permitted to lift the annual cost of its contracts by the rate of CPI, plus 3.9%. This gives it a terrific cushion against rising costs.
I like Vodafone in particular because of its huge presence in the African telecoms and mobile money markets. This could deliver robust long-term earnings (and consequently dividends) growth as economic conditions rapidly improve.
Recent share price weakness means the company’s dividend yield has leapt to 7.2% for this financial year (to March 2023). It also means its forward price-to-earnings (P/E) ratio has crumbled to a modest 11.9 times. As a value investor I find this combination hard to ignore.
It’s true that Vodafone faces significant competition in its European and African territories. But I still believe it has the tools to deliver vast shareholder returns over the long term.
Energy producer SSE (LSE: SSE) is another cheap stock I’d buy for passive income. Its forward dividend yield comes out at a FTSE 100-beating 5.3%. And its trades on a bargain-basement price-to-earnings growth (PEG) ratio of 0.5 for this financial year (to March 2023).
Speculation that SSE will avoid a windfall tax has boosted the company’s share price in recent hours. Though in this fluid political climate it’s possible the electricity giant could still be roped into paying the tax. The UK Treasury has predicted this could cost the entire industry an eye-watering £5bn.
But this wouldn’t deter me from buying SSE shares today. The company also operates in a highly defensive sector, a quality which gives me as a dividend investor supreme peace of mind. Like Vodafone, it should still enjoy robust revenues and cash flows, whatever happens.
I’d also buy SSE shares to latch onto the lucrative world of renewable energy. Demand for cleaner electricity is rising sharply as the battle against climate change intensifies. And SSE will invest heavily here over the next decade to increase its green energy capacity. Its Dogger Bank asset for example will be the world’s largest offshore wind farm when completed in 2026.