3 cheap shares I bought for high yields

As a veteran investor with more than 35 years of experience buying shares, I often scan it FTSE 100 and FTSE 250 index for cheap stocks. In the new stock screen, I found more than 20 Footsie shares paying a high yield (for me, defined as at least 5% a year).

Shares I have for juicy dividends

Since mid-2022, my husband and I have created a new stock portfolio. Our main goal with this new asset is to generate high income. Then we can use this extra money to pay our rising bills, or reinvest it in other stocks.

So far, we have bought 17 new shares, with at least three buybacks. Meanwhile, here are three cheap buys for excellent dividend yielding properties:

These three come from very different corporate worlds. Legal & General Group is one of the UK’s leading providers of life assurance, savings and investments. Anglo-Australian miner Rio Tinto it is one of the world’s largest producers of aluminum, copper, iron ore and zinc. And the telecom giant Vodafone is the world’s leading provider of mobile and broadband services.

When building a portfolio, this diversification of stocks – spreading your money across different companies and sectors – is great. It helps to prevent the risk of concentration and avoid too many eggs in the same basket.

These three stocks offer market-beating cash yields

In the next chapter I will say that all three have a low or modest price-to-earnings ratio and a high yield. To me, this is the definition of a ‘cheap’ stock – one with earnings results that beat the market average. Legal & General and Rio Tinto returned 13% and almost 14% respectively – roughly double the FTSE 100’s under 7%.

But what drew us to buy these stocks for our family portfolio was their market-beating dividend yield. The highest (8.4% a year) came from Vodafone, whose share price has fallen by more than a quarter in the past 12 months. However, this cash yield is guaranteed to be only 0.8 times the earnings, making it the most difficult payout of this trio.

Conversely, at Rio Tinto, its dividend yield of 8.3% – more than double the FTSE 100’s cash yield – is covered 1.7 times by earnings. Although history has taught us that mining dividends can be volatile, I am now confident of Rio’s 2023 payout. Then again, Rio last canceled its dividend in 2016. Ouch.

Finally, L&G’s cash yield of 7.2% per annum has the highest dividend cover, which is 1.8 times. I consider this payment to be rock-solid – barring another market crisis, that is. Indeed, I look forward to owning this stock for many years due to its ability to generate income.

In summary, we bought these three cheap stocks after they fell sharply. And now we’re going to hold on to passive income for years – or maybe until the dividend is cut!