2 cheap stocks I bought to try to earn some extra income

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Different people use a variety of methods to try to earn extra income. One approach I like is to buy dividend stocks. I hope they can help me out with some extra cash from time to time.

Here are two such dividend stocks that I think are trading at a cheap valuation that I bought for my portfolio.

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Jupiter Fund Management

I own shares of a number of fund managers. I recently bought Jupiter (LSE: JUP). Like some of its peers, the company now appears to be trading at a cheap valuation. A price/earnings ratio (P/E) of 6 seems low and the dividend yield is 10.7%.

Is it a bargain or does the price reflect some of the risk ahead? After all, Jupiter has seen its share price drop 43% in one year and is now trading near a 12-month low.

I think the risk of a recession hurts valuations for the sector in general, including Jupiter. It saw a net outflow of retail and wholesale assets under management in the first quarter. More money could be withdrawn if the economy worsens, threatening both revenues and profits.

But I think there are reasons to be optimistic. Institutional businesses and investment trusts both recorded net inflows during the quarter, albeit much smaller in size than retail and wholesale sales. Jupiter has been consistently profitable in recent years and its dividend is comfortably covered by earnings.

It enjoys a strong reputation with UK investors and in recent years has also expanded its international footprint. The double-digit percentage dividend yield should hopefully allow me to earn some extra income without working for it.

Lloyd’s

Another company with a P/E ratio of around 6 is the banking giant Lloyd’s (LSE: LLOY). Its dividend yield is much lower than that of Jupiter. But at 4.5%, I still find it attractive.

The company also generated substantial excess cash that it could still use to fund higher dividends. Its stock buyback program suggests to me that the company is generating more excess capital than it thinks it can usefully put to work. That’s why he hands it over to the shareholders instead.

I see a risk for Lloyds that any downturn in the housing market could hurt earnings. As the nation’s largest mortgage lender, an increase in borrower defaults would make it less profitable. On the positive side, the bank’s performance over the past two years has been solid. It has a large customer base, a large loan portfolio and a range of well-known banking brands to attract customers. These assets could help it earn substantial profits to fund dividends in years to come.

Just by owning these two stocks, I can earn extra income every time they pay dividends. The amount may be modest – £1,000 each would hopefully net me £107 from Jupiter and £45 from Lloyds next year. That’s just over £150 of extra money.

Dividends are never guaranteed. But if I continue to own the shares and they continue to pay dividends, my initial investment of £2,000 can earn me money for years to come.

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