Even after the recent stock market rally, there are a large number of cheap dividend-paying UK shares available to buy. Over the long run, they could provide a generous passive income that grows at a faster pace than inflation.
As such, now could be the right time to start investing regularly in a diverse range of them. Even a monthly investment of £500 could make a real impact on an investor’s long-term financial prospects.
Buying cheap dividend-paying UK shares today
There are a wide range of dividend-paying UK shares trading at cheap prices across the FTSE 100 and FTSE 250. This means that their passive income prospects in the short run seem attractive, with yields across the stock market currently being above average in many cases.
The main reason for this is weak investor sentiment regarding the short-term outlook for many sectors. Risks such as Brexit and coronavirus have caused challenges across a number of different industries, and profitability has suffered as a result. However, those businesses that have solid financial positions, affordable dividends and long-term recovery potential could be attractive investments at the present time.
Making a passive income today and in the long run
For example, dividend-paying UK shares such as Vodafone, SSE and British American Tobacco trade at cheap prices. This is evidenced by their yields, which stand at 6%+ and are above their long-term averages. Clearly, they face uncertain near-term outlooks. However, their financial positions, strategies and margins of safety suggest that they offer income investing appeal over the long run.
Similarly, FTSE 100 stocks such as Unilever, GSK and Tesco could offer above-inflation dividend growth over the coming years. Their market positions and rising demand within their segments could mean that their dividends grow at a fast pace compared to the wider FTSE 100. This could have a positive impact on an investor’s income outlook in 2021 and in the long run.
Regularly investing money in dividend shares
Of course, it is crucial to buy a broad range of dividend-paying UK shares to make a passive income. This reduces an investor’s reliance on a small number of businesses, and could lead to a less risky portfolio that delivers higher returns in the long run.
If an investor is able to reinvest their income return each year, they could further enhance their long-term prospects. For example, a £500 monthly investment in FTSE 100 shares could be worth £750,000 in 30 years if it makes the same return as the index has done since inception. From that end valuation, a 4% annual withdrawal equates to an income of £30,000.
With many of the shares mentioned above, and in the wider stock market, trading at cheap prices following the market crash, there may be scope to outperform the FTSE 100 and build an even more impressive nest egg that produces a large passive income in the coming years.