Nothing lasts forever. But when it comes to passive income stocks, investors need a modicum of surety, at least for the foreseeable future. In these troubling times, any stock that can hold its value and sustain its dividend yield for more than a decade qualifies as a ‘passive income’ stock in my book.
With that in mind, I’ve picked two stocks that offer the perfect combination of long-term viability and substantial current income. Both have been beaten down in recent years as their business models have come under threat, but I believe they’ve made the right investments and changed their prospects enough to warrant a bet.
London properties
Landsec (LSE: LAND), the real estate investment trust (REIT) widely regarded as a proxy for the British high street and office sector, is in the process of pivoting to properties concentrated in the big city.
At the moment, 65% of the company’s assets by value are located in London. The entire development pipeline, 3.6 million square feet of office and residential space, is also located in London. It’s clear that the company is betting the farm on the capital.
By now it is apparent that Brexit woes have battered London’s real estate market severely. Businesses have been moving out and residential buyers are still anxious about moving in. This creates the perfect opportunity for companies like Landsec to swoop in and add undervalued assets in anticipation of a reversion to mean for London’s eternally desirable land.
Meanwhile, investors are compensated by a 5.8% annualised dividend yield.
Renewable energy
Another clear opportunity for growth in the future is the global transition to cleaner energy. Energy giant SSE (LSE: SSE) has adopted the nation’s target for zero emissions as a core strategic goal for the next two decades. The company has already deployed over £1.4 billion in renewable assets over the course of this year.
Management expects to keep up this pace of investments until at least 2030, while also sustaining its generous dividend policy. The stock currently offers a dividend yield of just under 9%. The company has promised to deliver £4.25 in cumulative dividends per share by fiscal year 2023.
However, SSE has been losing long-time customers while it builds out this network and the debt burden has more than doubled over the past five years. Investors seem worried that the dividend could be slashed. These concerns have suppressed the stock price enough to make SSE one of the highest yielding stocks on the FTSE 100.
While there’s no doubt that these risks are severe, I continue to believe that SSE can weather the storm and successfully transition to renewable energy over the long-term. Although the debt burden is a concern, SSE isn’t the only utility company borrowing vast amounts of money in a low-interest rate environment.
Bottom line
The inevitable demand for cleaner energy and the timeless value of London’s properties make stocks like SSE and Landsec potential candidates for my perpetual passive income portfolio.
