When it comes to passive income investing, you want reliable long-term dividends. And that means stocks in companies that I expect to achieve strong cash generation over the next few decades.
Today we offer a snapshot of three of our favorite stocks. We have already invested in two of them. Highlight expected dividend yield. And for each, we suggest the main reasons to buy and what we see as the main risks.
Lloyds Bank Group (LSE: LLOY) is a high street retail bank and the UK’s largest mortgage lender. Lloyd’s stock has remained largely unchanged over the past 12 months, but has fallen by about a third in five years.
dividend yield: 4.8%, rising as expected.
Professional: The banking sector is key to the UK economy. And if the economy grows long term (which it has for centuries), Lloyd’s should have a lot of cash on hand. Right now, judging by the current valuation of the stock, I don’t think investors are looking at it. Instead, they seem too focused on short-term economic pressures.
con: The real estate market looks depressed. Rising interest rates have made mortgages beyond affordable for many first-time buyers. And it certainly has to hurt Lloyds in the short term.
verdict: Short-term pain, long-term gain.
City of London Investment Trust (LSE: CTY) seeks long-term income and capital growth by investing primarily in UK listed equities. It provides long-term progressive income.
dividend yield: 5%, long-term proven.
Professional: A big reason to support the purchase of City of London Investment Trust shares is their dividend performance. In addition to offering high yields, the trust has increased annual payments each year for the past 56 years.That puts it at the top of the Investment Firms Association’s list dividend hero An increase of at least 20 years.
con: Such a dividend history is also expected. Mutual funds can hold cash in good years to supplement dividends in bad years. But if a few years of stagnation fail to keep the dividend up, investors may flee.
verdict: Heroic long-term payout history.
national grid (LSE: NG) operates an electricity and gas distribution network in the United Kingdom and parts of the United States. The company’s stock has been volatile over his five years, with a moderate decline over the past 12 months.
dividend yield: 5.3%, progressive.
Professional: Electricity is generated from hydrocarbons, nuclear, wind or solar, but is transmitted through the National Grid owned by the National Grid. No matter who makes and sells the product, the company makes a profit. It enhances earnings visibility and underpins dividend credibility.
con: The move away from using gas as energy could eventually make parts of the grid obsolete, but there would be a corresponding increase in electricity production.
verdict: Reliable progressive payouts.
The Top 3 Passive Income Investments for 2023 post first published on The Motley Fool UK.
Alan Oscroft works for City of London Investment Trust Plc and Lloyd’s Banking Group Plc. The Motley Fool recommends Lloyd’s Banking Group Plc. The views expressed about the companies mentioned in this article are my own and may differ from the official recommendations I make on subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering diverse insights makes us better investors.
Motley Fool UK 2022