Insights

Why I’d buy and hold cheap dividend stocks to make a passive income

I think that seeking to make a passive income from cheap dividend stocks could be a sound strategy over the long run.
The post Why I’d buy and hold cheap dividend stocks to make a passive income appeared first on The Motley Fool Australia. –

man sitting in hammock on beach representing asx shares to buy for retirement

Making a passive income from cheap dividend stocks could be a neat solution to a challenging problem currently facing many investors.

The income returns on other mainstream assets, such as cash and bonds, are relatively low. By contrast, many dividend shares offer high yields, as well as long track records of reliable shareholder payouts.

Furthermore, the high yields on offer from dividend stocks suggest that they are cheap. This may mean they provide scope for capital growth in the coming years.

Making a passive income from cheap dividend stocks

Cheap dividend stocks provide a simple means of obtaining a relatively high passive income in 2021 and in the coming years. The 2020 stock market crash has left investors feeling downbeat towards a number of sectors. As a result, companies in industries such as financial services, defence and oil and gas currently have yields that are significantly higher than their historic averages. This could mean that an investor is able to enjoy a high income return simply from owning a diverse range of shares.

Of course, some companies with high dividend yields may face uncertain financial outlooks in the short run. This may mean that their dividends fail to grow at a rapid pace. However, those companies that have very affordable shareholder payouts alongside their high yields may offer attractive risk/reward opportunities. Investors may have factored in the risks they face through cheaper share prices, while their high dividend yields may be sufficient reward for higher risks.

A reliable track record of dividend growth

Cheap dividend stocks could also offer a worthwhile passive income because of their solid track records of shareholder payouts. As mentioned, some sectors are facing difficult near-term outlooks. However, some of the companies operating within them have good form when it comes to maintaining dividend payouts amid uncertain operating environments. In some cases, they may even have been able to raise dividends in the past despite tough sales and profit prospects.

Such companies may, therefore, offer a more resilient income outlook than investors are currently pricing in. The end result could be that they are undervalued at today’s price levels. This may mean that they are able to offer a high, and dependable, passive income stream in the coming years.

Cheap dividend stocks offer capital growth

Cheap dividend stocks may offer much more than just a passive income over the long run. Their high yields may mean that they offer wide margins of safety that equate to scope for capital growth in future. Therefore, a strategy that seeks to buy and hold them over the long run could deliver attractive total returns that are significantly ahead of other mainstream assets. The end result could be a positive impact on investor portfolios in 2021 and in the coming years.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia’s Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a ‘must consider’ for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don’t miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Click Here For Your Free Stock Report

Returns As of 6th October 2020

More reading

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why I’d buy and hold cheap dividend stocks to make a passive income appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!