Stock market

2 FTSE 100 bargain shares I’ll buy to target passive income of £1,300!

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gave FTSE 100 The index has gained an encouraging 4 percent so far in the second quarter. The London stock market is back in fashion thanks to new potential IPOs (such as those of Shen and Monzo), and the prospect of interest rate cuts.

Yet years of underperformance mean many first-class footy shares still trade at bargain basement levels.

I am currently looking for cheap stocks that can make me a healthy four-figure dividend income this year. The following two have caught my attention.

Company Forward P/E ratio Forward dividend yield
Vodafone Group (LSE:VOD) 10.8 times 7.2%
National Grid (LSE:NG.) 12.7 times 5.7%

As you can see, both shares yield significantly higher forward dividends than the average for FTSE 100 shares of 3.5%. They also deal at rock-bottom price-to-earnings (P/E) ratios.

If the dividend estimate is correct, a lump sum investment of £20,000 invested equally in both shares today will earn me passive income of £1,300 over the next year.

While they’re not without risk, here’s why I’ll be buying them for my portfolio this June.

Talking profits

Telecom firms like Vodafone have to overcome significant competitive pressures to make a profit. But the long-term growth potential for these businesses is fantastic, such is the rapid pace at which our lives are becoming increasingly digital.

This Footsie company has disappointed many investors with plans to revive its profitability in 2024. However, the expected payout for this year still has a dividend yield of more than 7%.

I believe the dividend on Vodafone shares will also increase over time. I am encouraged by initiatives to cut costs and refocus on better performing areas such as Vodafone Business, giving it an opportunity to turbocharge its already strong cash flow.

Its massive footprint in Africa could send revenues skyrocketing, as demand for data and mobile money services accelerates.

More big profits

National Grid has also been in the news recently for its dividend revival. In this case, payments will be restructured in response to the £7bn rights issue.

It says £60bn of network investment over the next five years will help the power transmission business meet its growth plans. The transition to green energy sources presents a huge opportunity for power companies to increase profits, and National Grid is taking bold steps to take advantage of it.

As you can see, the company’s operations are very expensive. And it’s a constant threat to revenue and profitability. But on balance, I think the long-term benefits of owning this share are huge.

One final thing to note. Recent share price weakness has left National Grid’s shares trading at just above 12 times the forward P/E ratio.

While this is above the Footsie average of 11 times, it is below the company’s historical average north of 16 times. I think today is an attractive opportunity to buy its shares.


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