2 Very Cheap Passive Income Stocks To Consider Buying For The Next Decade

I think we could be in for a great decade for passive investing. And I think I see some very cheap buys that might not stay that way for very long.

Buying shares for long-term passive income comes with risks. And right now, a cash ISA earning 5% a year could be the perfect solution for those who don’t want to take that risk.

This can’t last

But cash yields must fall when the Bank of England cuts rates. And when rates do fall significantly, are many of today’s stock market bargains likely to be gone?

For me, it’s worth taking on the extra risk based on the long-term outperformance of the stock market. But I’d commit to it for at least 10 years, just to be a little safer.

That said, I would rank my top passive income pick among the best FTSE 100the riskiest, at least in the medium term.

Rising dividends

I’m talking about Legal and general (LSE: LGEN) with a forecast dividend yield of 8.7%. That yield may not last if the Legal & General share price gains much. So far, though, it hasn’t moved much. And it’s still down 15% over the past five years.

I suspect that part of the share price weakness is due to a forecast price-to-earnings (PE) ratio of 10.7. After a 2023 in which earnings collapsed, this could be considered a poor amount for an insurance and investment company, which is prone to cyclical ups and downs.

Profit growth

But those forecasts show earnings rising and P/E falling. And the dividend looks set to rise, albeit slowly.

In this sector, I expect more risk and volatility in the short term. Legal & General, even more than most, should therefore be a stock to hold for more than ten years.

But I think it can provide a solid long-term income, even if it might be a little irregular from time to time.

The power of supermarkets

I turn to the FTSE 250 then, and a real estate investment trust (REIT). This is Supermarket Income Real Estate Investment Trust (LSE: SUPR), with an expected dividend yield of 8.3%.

The stock price has fallen by 30% in five years, following the real estate crisis.

I like the idea that TescoBritain’s largest supermarket chain, is due to pay a dividend of 3.9%. But the property investment trust, which counts Tesco among its largest tenants, is paying out more than double that amount.

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Real estate

What happens next will depend on the real estate market, and commercial real estate could remain weak for a long time. Earnings forecasts for the current year are poor, as the REIT is coming back from a loss in 2023. And that could keep the stock price low for longer.

But if forecasts hold, we could see a spectacular recovery in profits in 2025, with a P/E of just 7.5 and a stable dividend that could surpass Tesco’s.

Two to buy?

I don’t know which passive income stock I’m going to buy next because I see so many good candidates. But these two are on the list.

The article 2 Very Cheap Passive Income Stocks to Consider Buying for the Next Decade appeared first on The Motley Fool UK.

Further reading

Alan Oscroft has no position in any of the stocks mentioned. The Motley Fool UK has recommended Tesco Plc. The views expressed on the companies mentioned in this article are those of the author and may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a broad range of ideas makes us better investors.

Motley Fool UK 2024