3 stocks to buy for a passive income

Rupert Hargreaves takes a look at some of his favourite stocks to buy for a passive income and growth over the next few years.

| 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.

UK money in a Jar on a background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

When I am looking for stocks to buy for my passive income portfolio, I try to focus on businesses with a robust competitive advantage. 

I think this means they have a higher likelihood of being able to sustain and increase their dividend payouts to investors, although this is not a certainty. Indeed, as dividends are paid from company profits, there is always a risk that firms could slash the payouts if profits slump. 

Despite this risk, I would buy the three stocks below as passive income investments,  considering their dividend credentials. 

Stocks to buy for income

The first stock on my list is the United Utilities (LSE: UU). Its control of water and related services is paramount in a highly defensive industry.

As such, there will always be a demand for United’s services. The biggest challenge the company faces is complying with strict regulations regarding pricing and investment. However, considering its long track record of working in the sector, I think United has the experience required to manage these risks

The firm’s steady income stream means it is a dividend star. The stock currently offers a dividend yield of 4%, which is not the highest yield on the market. Nevertheless, due to the reasons outlined above, I think its dividend is one of the best on the market and deserves a place in my passive income portfolio. 

Growth and passive income 

Berkeley Group (LSE: BKG) is one of the UK’s most prominent homebuilders. The firm targets high-end properties, mainly in London and the South East. The average selling price of its new homes is around £770,000 compared to the UK average of £260,000. 

The firm’s profits have jumped in recent years, thanks to rising home prices and higher levels of output. Management is reinvesting these profits back into new buildings and returning cash to investors. 

City analysts believe the firm’s dividend yield could hit 7% this year as it returns increasing amounts of cash to investors. However, this trend may not continue in 2022. Higher interest rates and the end of the stamp duty holiday could push home prices and demand lower, curbing Berkeley’s growth. 

Still, I think the long-term fundamentals of the UK housing market are strong, and this should support Berkeley’s expansion over the next few years. 

Expanding market 

Safestore (LSE: SAFE) currently offers a dividend yield of around 1.9%. Some investors might overlook this stock as a passive income investment due to its low yield. I think that is a mistake. 

Over the past decade, the company’s payout has grown at a compound annual rate of 10% as profits have expanded. With management pursuing several additional growth initiatives to expand the group’s portfolio of self-storage facilities, I reckon this trend of dividend growth will continue. 

It may have to overcome some challenges along the way. Rising property prices, higher interest rates and competition are all factors that could hurt returns. If these headwinds weigh on profit growth, Safestore’s dividend growth could slow. 

Considering the company’s track record, and pipeline of growth opportunities, I believe the corporation has huge growth potential. 

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.

Rupert Hargreaves 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »