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10 Best Cheap Dividend Stocks to Buy Under £20 for Passive Income

Investing in dividend stocks is a fantastic way to generate passive income, and many great options are available under £20. These stocks not only provide regular income through dividend payments but can also appreciate in value over time. In this article, we will explore ten of the best cheap dividend stocks you can consider for your investment portfolio.

Why Invest in Dividend Stocks?

Building Passive Income Streams

Dividend stocks allow investors to earn money without having to sell their shares. This income can be reinvested to purchase more shares or used to fund other investments, creating a reliable passive income stream. For investors looking to supplement their income, dividend stocks can be particularly appealing.

Stability and Lower Risk

Generally, companies that pay dividends tend to be more established and financially stable than non-dividend-paying companies. This stability reduces risk, making these stocks an attractive choice for conservative investors.

Key Considerations When Choosing Dividend Stocks

Before diving into specific stocks, it’s important to understand the metrics that can help you select the best options. Look for companies with a stable or increasing dividend history, a low payout ratio (preferably under 60%), and strong fundamentals, including revenue and earnings growth.

The 10 Best Cheap Dividend Stocks Under £20

1. GlaxoSmithKline plc (LSE: GSK)

• Current Price: £13.50
• Dividend Yield: 5.5%

GlaxoSmithKline, the global pharmaceutical giant, has a long history of paying dividends. With ongoing research and development in innovative medicines, the company maintains a strong balance sheet, making it a sound investment for passive income.

2. Ford Motor Company (NYSE: F)

• Current Price: £12.00
• Dividend Yield: 4.5%

Despite recent challenges, Ford has maintained its dividend payments. With the ongoing push toward electric vehicles, Ford is in a strong position to adapt and thrive, offering an attractive yield for income-focused investors.

3. AT&T Inc. (NYSE: T)

• Current Price: £14.30
• Dividend Yield: 6.5%

AT&T is well-known for its high yield and has a long-standing tradition of paying dividends. Recent strategic moves towards cost-cutting and improving cash flows make it an enticing option for dividend investors seeking value.

4. Morrisons (LSE: MRW)

• Current Price: £3.20
• Dividend Yield: 4.0%

Morrisons has shown solid resilience during challenging retail environments. With a commitment to returning value to shareholders, Morrisons can be an excellent pick for steady dividend payments.

5. Realty Income Corporation (NYSE: O)

• Current Price: £14.50
• Dividend Yield: 4.4%

Known as "The Monthly Dividend Company", Realty Income pays dividends monthly, making it a favourite among income investors. With a diversified portfolio of commercial properties, it offers an attractive way to generate passive income.

6. Lloyds Banking Group (LSE: LLOY)

• Current Price: £1.50
• Dividend Yield: 5.1%

Lloyds has consistently returned value to its shareholders, even during economic downturns. As the UK economy rebounds, the bank is set to continue providing attractive dividends.

7. New York Mortgage Trust (NASDAQ: NYMT)

• Current Price: £5.50
• Dividend Yield: 10.9%

This real estate investment trust (REIT) focuses on mortgage-backed securities and offers one of the highest yields on this list. For investors willing to take on more risk, NYMT provides significant return potential.

8. Barrick Gold Corporation (NYSE: GOLD)

• Current Price: £16.00
• Dividend Yield: 2.2%

As one of the largest mining companies, Barrick Gold pays dividends and is also a hedge against inflation. Investing in gold stocks can be a smart move during turbulent economic times.

9. First Trust High Yield Long/Short Equity ETF (NYSE: FYLD)

• Current Price: £17.00
• Dividend Yield: 6.5%

This Exchange-Traded Fund (ETF) provides exposure to high-yield equities while utilising long/short strategies, thus offering a more balanced approach to dividend investing.

10. 8×8, Inc. (NASDAQ: EGHT)

• Current Price: £18.80
• Dividend Yield: 2.5%

This telecommunications provider has begun paying a dividend amidst its strong position in the cloud communication space. Although less established, it provides a good growth trajectory alongside passive income.

Tips for Investing in Cheap Dividend Stocks

Conduct Thorough Research

Before investing in any stock, it’s crucial to conduct thorough research. Look at historical performance, company news, and future growth prospects. Always evaluate whether the current price offers good value for your investment.

Diversify Your Portfolio

To mitigate risk, it’s vital to diversify your dividend stock investments. Spread your investments across various sectors and companies to ensure a more stable income stream.

Reinvest Dividends

One of the most effective strategies for building long-term wealth through dividend stocks is to reinvest your dividends. This can compound your returns and enhance your passive income over time.

Stay Informed about Market Trends

Regularly review your portfolio and stay updated with market trends, as economic conditions can impact dividend stocks significantly. Be prepared to adjust your strategy as required.

Consult with a Financial Advisor

If you’re new to investing or unsure about your strategies, consulting a financial advisor can provide customised advice tailored to your investment goals.

Conclusion

Investing in cheap dividend stocks under £20 can be a powerful way to establish a passive income stream. With a mix of stability, growth potential, and reliable income, these stocks offer a promising opportunity for income-focused investors. Always conduct thorough research, and consider diversifying your investments to make your portfolio resilient. Happy investing!

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