Dividends are a tried and trusted method to earn passive income but it’s best practice not to put all eggs in one basket. If a company stumbles, both the share price and dividend payments could take a nosedive.
Still, while diversification’s key, focusing on specific stocks can be a fun thought experiment. Which companies offer the most reliability and peace of mind?
If I could only choose two stocks to go all in on, it would be these.
The best of both worlds?
Healthcare’s often considered a low-risk, non-cyclical market that remains in high demand from a growing and ageing population. Housing’s a slightly riskier market but with more growth potential.
The two make a formidable team in the form of Primary Health Properties (LSE: PHP).
The real estate investment trust (REIT) has a portfolio of healthcare facilities that serve 6m patients. That’s almost 9% of the UK population. And it’s a solid dividend payer to boot, with a 6.7% yield and 27 consecutive years of growth.
In exchange for tax benefits, REITs are required to return 90% of profits to shareholders. In my opinion, that makes them a reliable option for long-term passive income. Moreover, 89% of its rental properties are roll-funded by government bodies.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
While healthcare’s a defensive industry, housing’s at more risk. If the housing market takes a dive, Primary Health’s share price could fall too. There’s evidence of this happening in 2007 during the housing market crash. More recently, the price suffered when interest rates soared in 2022. If similar events occur again, the falling share price could threaten dividend payments.
But previous recoveries have been swift so I feel the trust is reliable. Over the past 20 years, it has delivered annualised returns of 2.91%. Combined with an average 5% yield, total shareholder returns have been almost 8% a year on average.
Decades of dividend growth
City of London Investment Trust (LSE: CTY) holds the record for the longest uninterrupted period of dividend growth. For 58 years, the trust’s been increasing its annual dividend payments. At 4.72%, it doesn’t have the highest yield on the FTSE but its dividend track record is unmatched.
The trust invests mainly in leading UK companies. Among its top 10 holdings are well-known British brands such as Tesco, HSBC, and Shell. Still, it isn’t entirely reliant on the local economy. Due to the international reach of large UK firms, 60% of the revenue from its holdings comes from overseas. This makes it defensive against both industry-specific and regional risk.
However, it’s not without risk. Economic downturns have hurt the shares in the past and will likely do so again. If the fund’s managers make bad investment decisions, it could suffer losses. There’s also the risk of losses from exchange rate fluctuations on revenue that’s derived from abroad.
In the past 30 years, the price has increased at an average of 3.88% a year. Combined with an average 4% yield, long-term returns have been around 7.8% a year since the early 90s.
The post 2 fantastic passive income stocks I’d feel confident going all in on appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
2 of the greatest dividend stocks (including a FTSE 100 newbie) to consider in October!
These are my 3 top FTSE 250 dividend shares to consider buying right now
£20k tucked away? I’d try to turn that into a second income worth £225 a week!
Can you start buying shares with only £300? Yes you can – here’s how!
4 defensive stocks Fools have bought for long-term gains
Mark Hartley has positions in City Of London Investment Trust Plc, HSBC Holdings, Primary Health Properties Plc, and Tesco Plc. The Motley Fool UK has recommended HSBC Holdings, Primary Health Properties Plc, and Tesco 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.
