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Stock market crash! Why I’d buy these 2 cheap UK dividend shares now for a passive income

Peter Stephens
·3-min read
Various denominations of notes in a pile
Various denominations of notes in a pile

The stock market crash may have led some investors to avoid UK dividend shares to try to make a passive income. Their volatile recent performances may mean that cash and bonds offer a more stable return.

However, with dividend yields among UK shares being relatively high, they may appeal to an income investor. Meanwhile, low interest rates mean that cash and bonds may offer sub-inflation rates of return.

With that in mind, here are two FTSE 100 shares that appear to offer generous dividend prospects and low valuations that could lead to impressive long-term returns.

A defensive stock that offers a stable passive income

FTSE 100-listed GSK (LSE: GSK) may not be an obvious choice for an investor who is seeking to make a passive income after the stock market crash. After all, the healthcare company has failed to increase its dividend on a per share basis over recent years.

However, its recent updates have shown that it has delivered relatively resilient financial performance during a challenging period for the world economy. For example, its recent third-quarter update showed that it is on track to meet earnings guidance for the full year. This is despite disruption from coronavirus impacting negatively on its vaccine division.

GSK’s share price fall of 25% since the start of the year means that it now has a dividend yield of around 5.8%. That’s above the FTSE 100’s yield of 4.7%, and suggests that it may become an increasingly attractive means for an investor to make a passive income.

Certainly, there is likely to be further disruption to the company’s business model. There may even be a second stock market crash that impacts negatively on its share price. However, its track record of relative outperformance during a weak economic environment may make it an attractive income opportunity.

A growing UK dividend share

British American Tobacco (LSE: BATS) is another UK dividend share that could provide a relatively resilient passive income. The company recently announced that it has maintained its financial guidance for the current year despite some disruption caused by coronavirus.

Moreover, it continues to expect to pay out around 65% of its net profit as a dividend. This means that in the next financial year the company is expected to yield over 9%.

Certainly, BATS faces a challenging future as consumers gradually switch towards less harmful products. However, it now generates around 10% of its sales from non-combustible products and plans to invest heavily in cigarette alternatives. This could help to improve its financial prospects while cigarette volumes are declining.

Of course, there may be more popular UK dividend shares than BATS for investors who are looking to make a passive income. However, the progress it is making in implementing its revised strategy could help it to deliver a sound total return over the long run.

The post Stock market crash! Why I’d buy these 2 cheap UK dividend shares now for a passive income appeared first on The Motley Fool UK.

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Peter Stephens owns shares of British American Tobacco and GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore 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 diverse range of insights makes us better investors.

Motley Fool UK 2020