3 under-the-radar dividend shares I’d buy for passive income

Paul Summers finds the idea of passive income hard to resist. He’s picked out three stocks he thinks could generate a great dividend stream in 2021.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

To say I like the idea of making money from doing very little — otherwise known as ‘passive income’ — is putting it mildly. That’s why some of my savings are invested in dividend-paying companies, including some in the small-cap space. Today, I’ll discuss one example of the latter and two more that are on my watchlist. 

Passive income generator

I’ve held a stake in kettle safety control supplier Strix (LSE: KETL) for some time now. I see no reason for this to change following Wednesday’s encouraging update on trading over 2020.

Yesterday, Strix stated it had seen “a marked recovery” in demand from July to December. This performance should see it deliver “modest” profit growth for the period. That’s pretty encouraging considering just how awful 2020 was for most businesses.

Of course, Strix’s small-cap status means its share price is likely to be more volatile than your typical FTSE 100 beast. As an investor with time on his side (I hope!), that doesn’t bother me. However, it might make the shares unsuitable for others with shorter time horizons. 

Positively, Strix appears to have started the year well. Talk of a “strong” order book for January and Q1 should help the company reduce debt even further and continue paying passive income to holders. As far as the latter’s concerned, a 7.7p per share total dividend becomes a trailing yield of 3.3%, based on today’s share price.  

Boring… but beautiful?

Another small-cap generating passive income for its holders is XPS Pensions (LSE: XPS). Analysts have estimated a 6.6p per share cash return in the current financial year (ending 31 March). Using today’s share price, this gives a chunky forecast yield of 5.5%. For perspective, the best I can get from a Cash ISA at the moment is a measly 0.55%! Trading at 12 times forecast earnings, XPS also looks very reasonably priced, in my opinion. 

Any downsides? Well, the likely share price performance is unlikely to quicken pulses soon. As the largest pensions consultancy in the UK, XPS will never attract the sort of attention that other stocks might. This being the case, I wonder if the biggest risk in buying XPS is the opportunity cost of not taking opportunities elsewhere. 

Still, if I was looking for a relatively mundane, uncyclical business that pays out cash to its owners without too much fuss, XPS surely ticks the box! 

Outperforming expectations

A final under-the-radar small-cap stock offering decent passive income is pawnbroker H&T (LSE: HAT). Benefiting from strong demand for jewellery, and the fact that most of its 253 stores could remain open, the company experienced “stronger than anticipated trading” in the final two months of 2020. This, H&T believes, will now lead it to outperform market expectations on profit for the full year.

Sure, some investors may be put off by the image of the industry in which H&T operates. The small matter of the company’s unsecured cash loans business being reviewed by the Financial Conduct Authority is an example of this.

For those comfortable with the ethics of this sector however, analysts currently have the company down to return 9.7p per share for 2020. That would equate to a 3.4% yield at the current share price. Factor in a £34m cash balance and no debt and I suspect cash payouts might rise again in 2021.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers owns shares of Strix Group. 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.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 ways to make money from a stock market crash

This writer's not spending time trying to guess when the next stock market crash will be. Instead, he's getting ready…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

How this rocketing FTSE 250 stock is tapping into the billionaire-making AI revolution

As the AI revolution mints new billionaires, this high-flying FTSE 250 company has been making its shareholders wealthier too.

Read more »

Investing For Beginners

4 actionable stock market investing habits that can boost my profits

Jon Smith looks at the stock market and explains how he picks the right shares to buy, running through a…

Read more »

Investing Articles

The Standard Chartered share price leaps on FY dividend and buyback news. Time to buy?

An 8% jump for a UK-listed bank on 2023 results? That's what just happened to the Standard Chartered share price.…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Can Lloyds shares get any cheaper?

Lloyds shares have fallen further following the release of the bank's 2023 results. This Fool senses now is a time…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

£7,000 of money to spare? Here’s how I’d aim to turn that into £1,000 in annual extra income

Christopher Ruane explains how he would aim to generate a four figure income to cushion his future, all with dividend…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Is this stellar dividend growth stock the only no-brainer buy on the entire FTSE 100?

Picking shares requires careful thought and analysis, but this FTSE 100 growth stock appears to be pressing all the right…

Read more »

Investing Articles

I bought 422 Glencore shares in July and 232 in September. Here’s what they’re worth now

Glencore shares have had a rough ride leaving Harvey Jones out of pocket. Should he cut his losses or average…

Read more »