Global stock markets are on the defensive as signs of a potential US recession emerge. Shares across the London Stock Exchange have slumped as worries over potential returns from growth and dividend stocks mount.
Goldman Sachs now puts the chances of a US recession at 25%, up from 15% previously. JPMorgan’s even more pessimistic after last week’s poor jobs data. It puts the odds at just 35%, up from 25%.
This suggests that investors depending on dividend income, whether for their investment strategy or daily needs, should carefully consider which stocks to choose.
In this environment, it might be wise for me to focus on companies that have:
Robust positions in sectors that are largely unaffected by the economy, such telecommunications, utilities, defence, healthcare and consumer staples
Strong balance sheets, typified by low debt levels and healthy cash flows
Moderate dividend payout ratios, for instance between 40% and 60%. This might provide scope for dividends to be maintained (or increased) even if profits fall
Competitive advantages (‘economic moats’) that help them remain profitable even in difficult times. Examples include strong brands, patented products, and cost advantages
A £1,220 second income
This narrows the number of stocks I have to choose from. However, it doesn’t mean I don’t have good opportunities to make a strong passive income.
There remain hundreds of top UK stocks in good shape to pay a large (and potentially growing) dividend regardless of economic conditions. Here are just two of them:
Company
Predicted dividend growth
Dividend yield
The PRS REIT (LSE:PRSR)
3%
4.8%
Greencoat Renewables (LSE:GRP)
6%
7.4%
If broker forecasts are correct, a £20,000 lump sum invested equally across these shares would provide an £1,220 passive income over the next 12 months.
Here’s why I’d buy them if I had spare cash to invest.
The PRS REIT
The PRS REIT’s a rock-solid income stock, in my book. It’s maintained dividends even during the ongoing cost-of-living crisis. And in the current financial period (to June 2025) it’s tipped to start growing them again.
This is thanks to its focus on the residential property market. Demand for housing remains stable at all points of the economic cycle. In fact, the business is benefitting from strong rental income growth as property shortages persist. Like-for-like rents here jumped 11.7% in the three months to June.
Real estate investment trusts (REITs) like this have to pay 90% of annual rental earnings or more out in dividends, which bodes well for future payouts. However, I’ll bear in mind that profits could suffer if interest rates fail to fall from current levels.
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.
Greencoat Renewables
Electricity, like accommodation, is another essential commodity whose demand remains broadly unchanged over time. So I think Greencoat Renewables could be another sound investment in these uncertain times.
This business predominantly operates wind farms in Ireland, though it also owns renewable energy assets in parts of Mainland Europe. With investment in clean energy heating up, I think the company could be a great buy for long-term dividend growth as well.
I’m concerned about the prospect of rising costs at Greencoat Renewables. Keeping wind turbines in working order is famously expensive, and this could put a dent in earnings. But, on balance, I think it could prove to be a top buy for me.
The post 2 dividend stocks I’d buy to target a £1,220 passive income even during a recession! appeared first on The Motley Fool UK.
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More reading
£25,000 in savings? Here’s how I’d look to earn a second income from the UK property market
Very big dividends are expected from these 2 UK shares!
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
