My top 5 UK shares for passive income in 2022

Rupert Hargreaves explains why these UK shares are some of his favourite passive income investments, considering their prospects for 2022.

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I am always looking for UK shares to add to my passive income portfolio. As well as high growth stocks, I own a portfolio of income shares to produce a steady stream of dividends to support my regular income. 

As we begin 2022, I am looking for new stocks to add to this portfolio. And there are a couple of corporations that have recently caught my attention. I would buy all of the company’s outlined below for my portfolio.

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UK shares for income

The first on my list is the infrastructure investment group 3i Infrastructure (LSE: 3IN). This company owns a portfolio of infrastructure assets around the world. This is a great asset to hold as an income investment because related contracts are usually multi-year and inflation-linked. This gives the enterprise a high level of visibility over future cash flows. 

These qualities, as well as the company’s progress in seeking out new investments, have helped it increase its dividend at a compound annual rate of 6% over the past six years. 

Of course, past performance is no guarantee of future potential. But considering the company’s attractive qualities, I think there is a high chance this growth could continue. At the time of writing, this stock offers a dividend yield of 2.9%.

Issues the group could encounter include higher interest rates. These could lead to higher costs, reducing the amount of cash available for distribution to investors. 

Passive income growth

Also on my list is 4imprint (LSE: FOUR), which designs and manufactures promotional marketing material. Unfortunately, this has been a complicated business over the past two years.

During the pandemic, companies have been forced to greatly reduce the number of face-to-face marketing activities. Consequently, the demand for promotional products has declined. Revenues dropped from $861m in fiscal 2020 to $560m in fiscal 2021. 

However, a rapid recovery is expected over the next two years. City analysts have pencilled in revenues of $904m for the 2023 financial year. Profits are also expected to rebound, and so is the firm’s dividend. 

Analysts believe the stock will yield 1.5% next year. That might not seem like much, but 4imprint’s balance sheet is stuffed full of cash, and there is plenty of headroom for further growth in the years ahead. This potential is the main reason I like the look of the company for my passive income portfolio. 

Challenges it could face going forward include competition and additional pandemic restrictions. These headwinds could curb growth. 

Income from property

One of the top UK shares for passive income, in my opinion, is Big Yellow (LSE: BYG). Thanks to its steady profit growth, this self-storage company has become an income champion over the past decade. As management has reinvested profits back into the business, it has grown rapidly, with book value up more than 100% since 2016. 

As Big Yellow’s property portfolio has expanded, the organisation’s income generation has increased. Management has been able to hike the firm’s dividend to investors by 100% since 2016. The stock currently yields 2.3%. And with further development opportunities planned over the next couple of years, it seems likely this payout will continue to grow as it grows. 

Some notable challenges the group may encounter as we advance include higher interest rates, as it relies on debt to fund expansion initiatives. Higher rates could lead to increased interest costs, reducing the amount of cash available for distribution. 

International expansion

Some of the best UK shares for income, in my opinion, are international growth stocks. HSBC (LSE: HSBA) is one of the best examples. 

The Asia-focused bank is one of the world’s largest banks, and as interest rates begin to increase, I think it has fantastic potential for the next few years. As the global economy also begins to recover from the pandemic, the group should have plenty of opportunities to expand its footprint and increase lending to customers. 

These twin tailwinds may help the business’s bottom line expand rapidly in the years ahead. And HSBC has always been one of the best UK shares for income, which suggests that, as the group’s bottom-line grows, it could increase the dividend to investors. 

At the time of writing, the stock offers a dividend yield of 3.6%. City analysts are expecting payout growth of 20% in 2022, implying the shares could yield 4.3% next year. As well as this income potential, HSBC has also been returning cash to investors by repurchasing shares. These are the reasons why I think the stock is one of the best passive income shares to buy. 

Unfortunately, the company’s growth is far from guaranteed in the years ahead. Risks it could face include further pandemic restrictions and a deterioration in relations between China and the United States, which may hit global trade flows. 

UK shares for income and growth

Moneysupermarket.com (LSE: MONY) is one of my top UK shares for passive income generation and earnings growth. It also looks incredibly cheap at current levels. 

The company, which operates online comparison sites, is currently selling at a forward price-to-earnings (P/E) multiple of just 15. This reflects uncertain market sentiment towards the business. Regulatory changes have hurt the outlook for the comparison market, and it is unclear how much of an impact these changes will have on the corporation’s bottom line. 

Still, I am happy to look past these headwinds and buy the stock. As well as the cheap valuation, the stock also supports a dividend yield of 5.1%. It has a cash-rich balance sheet and robust profit margins, suggesting it can sustain a higher than average dividend yield. 

As well as this income potential, there is also scope for a valuation re-rating. This could provide both income and capital growth in my portfolio of UK shares. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended 4imprint Group, HSBC Holdings, and Moneysupermarket.com. 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.

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