These 2 UK dividend shares look cheap! Here’s why I’d buy

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I see buying UK-listed dividend shares as key way to create passive income. And the FTSE 100 is home to plenty of businesses willing to reward shareholders with sizeable dividend yields.

Here are two I’m watching like a hawk.

Dividend powerhouse

My first choice is Footsie stalwart Legal & General (LSE: LGEN). I already own the stock. However, following a shaky week for its share price after the release of its half-year results on 15 August, I’m tempted to top up my holdings.

The main reason for the fall was the detrimental impact that rising interest rates have had on its fund management arm and aspects of its UK insurance business. However, I deem these short-term issues and I’m more focused on the positives.

To start, the stock looks cheap. As I write, it trades on a price-to-earnings ratio of just 6. That’s over half that of the FTSE 100 average, so I see real value in Legal & General shares.

Moreover, its near-9% dividend yield is also enticing. The firm’s made a massive push in boosting shareholder returns in the past few years, including its ambitious dividend plan set to end next year. In its latest announcement, group CEO Sir Nigel Wilson said the business remained in the position to “deliver attractive returns” to shareholders.

More widely, I’m a fan of L&G due to its rich history and strong brand presence. The current issues seen in the financial sector could hamper its performance in the short run. But with its name, low valuation, and attractive income, I’d be keen to buy Legal & General shares.

A dark horse

Second on my list is banking giant Lloyds (LSE: LLOY). Similar to Legal & General, I already own the stock. However, following a 10% fall in 2023, I sense an opportunity to buy.

It’s been far from plain sailing for banking stocks in the last 12 months. Racing inflation, aggressive rate hiking, and the volatility seen across the sector, have investors spooked. But, in my opinion, there’s plenty to like about Lloyds.

For example, the stock provides investors with a yield touching 6%. While this isn’t inflation-beating, it certainly trumps my money sitting stagnant in the bank. Covered nearly three times by earnings, I’m also fairly confident that it’ll be paid out.

The Black Horse Bank recently released its half-year results, with highlights including an 11% jump in net income (£9.2bn). Rising interest rates have also played a part in Lloyds’ near-term success. That said, impairments did rise to £662m for the period.

Aside from results, the firm is also taking great strides to ensure future success, including a £3bn project to diversify its revenue streams.

Its reliance on the UK is a slight worry. And a choppy short-term outlook could harm Lloyds. However, I’m ignoring that in favour of the long-run growth opportunities, of which I see plenty.

The play

I like both stocks, and despite already owning them, I’m keen to top up my holdings as I look to put my money to work. If I have the cash, I’ll be looking to snap them up in the weeks ahead.

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