Passive income is the holy grail for many investors — myself included. Personally, I want to see the value of my investments increase while having the option to take my dividend, or reinvest it year on year.
So let’s take a look at three stocks I think investors should be buying in 2023 to generate passive income.
Vodafone
Vodafone (LSE:VOD) is among the highest-paying dividend stocks on the FTSE 100. The communications giant is currently offering a sizeable 7.6% dividend yield.
However, it’s important to remember that high yields can sometimes be a warning. In this case, Vodafone has a fairly low coverage ratio — a financial metric that measures the number of times a company can pay dividends to its shareholders.
In 2022, the dividend coverage was 1.22. With performance looking fairly flat, the ratio could remain similar for 2023, but I’d like to see it closer to two. However, even if the dividend were cut slightly, it would still offer a highly attractive, above-average yield.
I recently bought this stock after e& (formerly Etisalat) upped its holdings in the firm and communications giant Liberty Global purchased a 4.9% stake. If telecoms giants see the share price as a buy, it probably is.
Hargreaves Lansdown
Hargreaves Lansdown (LSE:HL) is among the best growth stocks on the FTSE 100, but it also offers an attractive 5% dividend yield.
The stock is down 21% over one year and 45% over two. Hargreaves soared during the pandemic, but it’s become clear that the investment platform will struggle to maintain that pace of growth in the post-Covid world.
However, in the long run, I see Hargreaves growing considerably, especially when we’ve moved through the cost-of-living crisis. More and more Britons are looking to manage their investments, and Hargreaves offers the best platform to do this, in my opinion.
In the short term, there’s another tailwind. That’s higher interest rates. Hargreaves has been earning more interest on customer deposits. This has mitigated falling trading numbers during the cost-of-living crisis.
I’m buying more of this stock for the passive income and long-term growth story.
Sociedad Química y Minera de Chile SA
I’ve also recently added Sociedad Química y Minera de Chile SA (NYSE:SQM) shares to my portfolio. In fact, it’s one of a few US-listed stocks I own at the moment, due to the weakness of the pound.
SQM is a low-cost lithium miner, offering an impressive 8.6% dividend yield. It has a reasonably low payout ratio (43.9%) and this appears to be supported by positive fundamentals.
The soaring price of lithium has been core to the surging share price in recent years. And despite frequently changing narratives, it does appear that lithium prices will remain strong for the long run.
Of course, there are concerns about Chilean politics, geopolitics and access to this increasingly precious metal, but the signs are positive. Lithium is central to the electrification agenda and EVs require substantially more lithium than traditional combustion engine vehicles.
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James Fox has positions in Hargreaves Lansdown Plc, Sociedad Química Y Minera De Chile, and Vodafone Group Public. The Motley Fool UK has recommended Hargreaves Lansdown Plc and Vodafone Group Public. 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.
