Receiving passive income makes me happy. Getting money for doing nothing lets me buy more shares, hopefully increasing the level of dividends I receive the next time a payout’s due.
To be honest, I have no idea whether Nordic companies pay generous dividends. But in March, the United Nations declared that — for the seventh consecutive year — Finland was the happiest country on earth. A proximity to nature, personal freedom and a good work/life balance were cited as the principal reasons why they’re so happy. Passive income wasn’t mentioned.
The Oracle of Omaha
But there’s a group of people I believe are happier than both me and the Finns. They’re shareholders in Berkshire Hathaway, billionaire investor Warren Buffett’s investment company.
Between 1964 and 2023, the company’s share price grew by 4,384,748%. During the same period, the S&P 500 increased by ‘only’ 31,223%.
And as usual, during the first week of May, it held its annual meeting in Omaha. With shuttle buses organised from local hotels, a $6 BBQ Meal Deal and the opportunity to buy exclusive rings, watches and fine gifts, I reckon there was a holiday-like atmosphere about the place.
And it’s no wonder. With one ‘A’ share costing over $600,000, the ‘typical’ shareholder is probably wealthier than most Americans.
Of course, there are no guarantees when it comes to investing. But the company’s share price has increased during 48 of the past 59 years. Achieving an average annual growth rate of 19.8% over such a long period’s remarkable.
That’s why I reckon they are such a happy bunch, particularly those from Finland!
And yet the company’s never paid a dividend.
Personal experience
By contrast, my portfolio’s stuffed with high-yielding shares generating good levels of passive income. And most of them are members of the FTSE 100.
My current favourite is Legal & General (LSE:LGEN). Based on its 2023 dividend, it’s currently yielding 8.1%. And as the chart below shows, it has a long track record of steadily increasing its return to shareholders.
Source: company annual reports
Of course, dividends are never guaranteed. But I’m hoping for future increases as the company has ambitious growth plans.
Brokers are expecting earnings per share of 24.66p in 2024. This implies a forward price-to-earnings ratio of 10. This is significantly lower than others in the sector. For example, the shares of M&G, another financial services provider, are currently trading on a multiple of 16.
Legal & General also has a strong balance sheet. At 31 December 2023, its Solvency II ratio was 224%. This needs to be above 100% to meet its regulatory requirements.
However, its 2023 results were disappointing. They were lower than analysts’ consensus forecasts. And its investment management division saw a £154m (11.7%) fall in the average value of assets under management during the year.
Also, the business as a whole is sensitive to the wider economy. Any sign that growth is stuttering, particularly in the UK and US, and investors are likely to become nervous.
But I’m encouraged by the company’s plans to acquire £8bn-£10bn of new pension schemes each year. And if Legal & General continues to grow its dividend — and I receive the levels of passive income I’m expecting — I’ll be a happy man.
The post Despite receiving zero passive income, I reckon these are the happiest shareholders on earth! appeared first on The Motley Fool UK.
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James Beard has positions in Legal & General Group Plc. The Motley Fool UK has recommended M&g 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.
