3 stocks to buy for passive income in 2022

Investing in dividend stocks can be a great way to generate passive income. Here, Ed Sheldon lists three stocks he’d buy for passive income in 2022.

| 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.

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

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.

sdf

Investing in dividend stocks can be a great way to generate passive income. These stocks hand their investors regular cash payments for doing absolutely nothing.

However, it pays to be selective when picking stocks for passive income. That’s because companies can cut, cancel, or suspend their dividend payouts at any time. With that in mind, here are three dividend stocks I’d be comfortable buying for passive income in 2022.

Smith & Nephew

One dividend stock that strikes me as a top pick for passive income is Smith & Nephew (LSE: SN). It’s a leading healthcare company that specialises in joint replacement systems. SN has paid a dividend every year since 1937 and didn’t cut its payout during Covid, so it’s fair to say it has an excellent dividend track record. At present, the yield is about 2%.

I think Smith & Nephew has the potential to generate attractive total returns (dividends plus share price appreciation) in the years ahead. Throughout Covid-19, it has suffered because a lot of elective medical procedures have been postponed. As the world returns to normal, these procedures are likely to be resumed, which should boost revenues and the share price.

Of course, if Omicron results in a high level of hospitalisations, SN could struggle. In this scenario, the stock could underperform. I would expect the company to still pay a dividend however, given that it didn’t cut its payout in 2020.

Unilever

Another top stock for passive income, in my view, is Unilever (LSE: ULVR). It’s a consumer goods company that owns a wide range of brands, such as Dove, Domestos, and Ben & Jerry’s. This is another company with an excellent long-term dividend track record. Currently, the yield is about 3.6%.

The reason I see ULVR as a great pick for passive income is that the company is quite ‘defensive’ in nature. Consumers tend to buy its products no matter what the global economy is doing. This means Unilever is able to generate relatively stable revenues and earnings. This translates to consistent dividends, which is ideal from an income investing perspective.

There are risks to consider here, of course. One is inflation. Recently, Unilever has been facing higher costs and this has hit profits. Another is changing consumer tastes. Overall however, I think the risk/reward proposition is attractive.

Legal & General

Finally, for a high-yielder, I like Legal & General Group (LSE: LGEN). It’s a financial services company that specialises in insurance, investment management, and retirement solutions. At present, the yield here is around 6.4%, which I see as very attractive in today’s low-interest-rate environment.

Usually, I steer clear of high yielders when investing for passive income. That’s because, quite often, a high yield is an indication the market believes a dividend cut is coming. In this case however, I see considerable appeal in the stock. Over the last decade, the company has established an excellent dividend track record (it didn’t cut its payout during Covid). And, looking ahead, City analysts expect the payout to keep rising.

One thing to note here is that financial services stocks like LGEN can be a little volatile. In other words, the share price can move up and down. But I’m comfortable with this volatility. I think the key here is to ignore the share price movements and focus on the passive income the company is providing.

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.

Edward Sheldon owns Legal & General Group, Smith & Nephew, and Unilever. The Motley Fool UK has recommended Smith & Nephew and Unilever. 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

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing For Beginners

Up 10% in a day, this FTSE 250 stock still looks undervalued to me

Jon Smith explains why a FTSE 250 finance stock has soared higher and flags up reasons why this might not…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Rolls-Royce shares are close to reaching £10. Is it too late to buy?

Rolls-Royce shares have come a long way. With the price within spitting distance of £10, our writer considers whether he…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

With H1 profits back on track, is this FTSE 250 housebuilder ready to bounce back?

Operating profits are down 22% at Vistry. But as cost issues give way to government support, could the FTSE 250…

Read more »

Investing Articles

2 fantastic UK growth stocks to consider for a Stocks and Shares ISA

Looking for opportunities for a Stocks and Shares ISA portfolio? Our writer shares two ideas from the London Stock Exchange.

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

Investors could target £8,840 of annual dividend income from 5,851 shares in this FTSE 250 high-yield star!

Shares in this FTSE 250 stock generate a much higher dividend yield than the index average and can produce potentially…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

HSBC’s share price has dipped 5% to just over £9, so should I buy more right now?

HSBC’s share price has dipped in recently, but this could signal a bargain to be had. I ran the key…

Read more »

many happy international football fans watching tv
Investing Articles

Is this FTSE 250 stock gearing up to more than double its market cap by October?

Our writer considers the implications of a recent stock market announcement for the share price of this FTSE 250 retailer.…

Read more »

Inflation in newspapers
Investing Articles

3 overlooked UK shares growing dividends faster than inflation

Mark Hartley highlights three lesser-known UK shares offering inflation-beating dividends, while noting key risks investors should watch.

Read more »