We don’t have to break the bank to enjoy market-beating passive income right now. The FTSE 100 alone is packed with excellent cheap shares that are tipped to deliver spectacular dividend income in 2024.
I’m a big fan of Warren Buffett and his strategy of buying undervalued companies (he famously said that “whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down“).
Investing in underpriced stocks gives me a chance to make market-beating capital gains over the long term. Rio Tinto (LSE:RIO), M&G (LSE:MNG) and WPP (LSE:WPP) are three FTSE-listed companies I believe could help me do just that.
They might also help me make a spectacular second income next year, as the table below illustrates.
Company2024 P/E Ratio2024 Dividend Yield Rio Tinto 9.5 times 6.2% M&G 9.9 times 9.5% WPP 7.8 times 5.3%
5.3% dividend yield
Buying these three FTSE 100 stocks would give me an average yield of 5.3%. This is well above the leading index’s forward average of 3.8%.
Rio Tinto is a blue-chip share I already own. And despite the uncertain outlook for commodities demand in 2024, I’m considering adding to my holdings.
I’m expecting profits (and consequently dividends) here to soar as the next commodities supercycle gets under way. Demand for the company’s key metals like iron ore, copper, lithium and aluminium could rise strongly as the green energy transition accelerates, emerging market urbanisation continues, and the tech revolution moves up a notch.
In great shape
As for next year’s dividends, Rio Tinto has a strong balance sheet that should allow it to meet current broker projections. Its net-debt-to-EBITDA ratio stood at just 0.4 times as of June.
Ad agency WPP is also in good shape to pay those large expected dividends in 2024. Next year’s predicted payment is covered 2.4 times over by expected earnings, above the widely-regarded safety benchmark of 2 times.
This provides me as an income investor with peace of mind given current weakness in global advertising spending. And especially as net debt has crept slightly above target more recently.
I remain very confident in WPP’s long-term investment potential. It has the scale and the expertise to exploit the market recovery when it comes, boosted by its long-running acquisition strategy. And I think its focus on the fast-growing digital ad segment will take earnings to the next level.
A £1,400 passive income
Investment manager M&G is the final FTSE 100 bargain I’m looking to buy for passive income. Business conditions remain tougher than usual, but strong capital generation means it should still pay large dividends in the New Year. Its Solvency II capital ratio remained above target at 199% as of June.
This is a stock I’d buy to hold for the long term too. A booming elderly population in the UK and rising concerns over the State Pension should significantly bolster demand for its financial products.
If I invest my full £20,000 ISA allowance equally across these three shares, I would — if broker forecasts prove correct — make a healthy passive income of £1,400 next year. And with some luck I could expect a steadily rising income as they grow their dividends.