I reckon there’s still no better hunting ground for UK investors seeking passive income than our home market. But sticking to companies with strong records of returning cash to their owners still makes a lot of sense to me.
Here are three I’d be comfortable buying today if I could find some spare cash.
Boring but brilliant
Power provider National Grid (LSE: NG) is surely one of the dullest companies around. And who wants to own a slice of utility business when there are stocks like Nvidia delivering massive gains across the pond?
Well, I do if I’m looking for dividends. Boring or not, our constant need for electricity and gas means that the Grid’s earnings are wonderfully consistent, at least relative to many of its peers in the FTSE 100.
This stability makes for reliable passive income. It also means that management can afford to raise the amount of money returned every year. And that’s exactly what’s happened for decades now.
Let’s not confuse ‘reliable’ with ‘guaranteed’ thought. The capital intensive nature of what it does means that the £39bn-cap has a truckload of debt on its balance sheet. So that chunky dividend yield — currently 5.6% — should never be taken for granted.
Barring a cataclysmic issue with its infrastructure however, I think this stock takes some beating as a cornerstone income stock.
Habitual buy
A second business that’s shown itself capable of throwing back increasing amounts of cash to investors is FTSE 250 member Britvic (LSE: BVIC).
The owner of drinks brands such as Robinsons, J2O and Tango benefits from shoppers buying its low-ticket items out of habit and regardless of what the economy’s doing. As evidence of this, the company recently reported a strong performance in Q1. That’s despite the UK falling into recession at the end of 2023.
Britvic also operates in a completely different space to National Grid. Now, that won’t stop the share price of either falling during a general market meltdown. But it should offer some protection in the face of possible sector headwinds and the need to alter its dividend policy.
Shares currently change hands on an attractive forward price-to-earnings (P/E) ratio of 13 and come with a 3.8% yield.
Ready to recover?
A final FTSE stock I’d snap up is self-storage firm Safestore (LSE: SAFE). While it hasn’t been around as long as the others, it’s already built a great reputation for paying dividends (and regular hiking them).
Once again, this record could always come a cropper. Speaking of which, Safestore’s shares are down by over 20% in the last year as anything related to real estate has been sent to the dog house. There could be more to come if interest rate cuts come later than expected.
But unless the economic cycle is completely broken, I expect this sentiment to eventually reverse. Moreover, there’s still a “substantial under-supply of quality self-storage capacity across the UK and Europe“, according to the company.
In the meantime, the stock trades on a forecast P/E of 16. That’s far from ludicrously expensive, especially if analysts are soon pushed to revise their earnings forecasts.
For now, the yield of 4.1% looks comfortably covered by profit. Like Britvic, it’s also higher than that offered by the FTSE 250 as a whole (3.4%).
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Britvic Plc, Nvidia, and Safestore Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
