One of my favourite passive income ideas is buying shares in the hope they pay me dividends.
Dividend shares as passive income ideas
Dividends are never guaranteed, but mixing my holdings between different companies means that even if one cuts its payout I can still receive passive income from others.
Here are three UK dividend shares from different industries I would consider buying for my portfolio.
British American Tobacco
One dividend share I already own and would be happy to keep buying is British American Tobacco (LSE: BATS).
Tobacco is a business that carries risks for manufacturers as well as their customers. From declining cigarette purchase rates hurting sales volumes to the potential costs of a withdrawal from the Russian market, the Lucky Strikes owner faces a number of challenges.
But I think the risks are already factored into the company’s share price. It offers a 6.7% yield. The company has raised its dividend annually for over two decades. Although the most recent raise was small, British American has also started a sizeable share buyback programme. That suggests management is confident in the business outlook. The company has also been making progress in reducing debt.
With its strong cash flows, portfolio of premium brands and pipeline of non-cigarette products, I continue to see British American Tobacco as an attractive passive income pick for my portfolio.
Insurer and financial services provider Direct Line (LSE: DLG) is another of the passive income ideas I would consider adding to my portfolio. It currently offers a yield of 8.3%, so if I invested £1,000 in it today I would hope to get annual passive income of £83 in future.
Insurance is not typically a high-growth business, but it is pretty resilient. Vehicle owners are obliged to have insurance. Many homeowners keep insuring their properties even when premium prices go up. That makes for attractive economics in the insurance industry. Direct Line’s iconic brand can help it benefit from those economics. That can enable it to reward shareholders with dividends.
There are risks, too. For example, shortages have pushed up the cost of secondhand cars. That has made it costlier for Direct Line to settle some claims, which could eat into profits. Over the long term, though, I reckon the company’s proven ability to price the risks profitably could make it an attractive dividend share for me to hold in coming years.
Shares in healthcare property landlord Assura (LSE: AGR) have fallen 7% over the past year. Along with a growing dividend, that means the company currently offers a yield of 4.4%.
I think Assura is positioned to benefit from strong demand for the sorts of properties it operates. From local clinics to ambulance depots, I expect resilient demand to support future profits.
One risk here is share dilution to fund ambitious expansion plans. That could lower earnings per share if the company’s growth is not well-managed.
Assura is not what I would call an exciting business. Actually, that is partly why I like it. The business model is proven and it works. I think Assura’s market niche could support profitability in the coming years. The dividend appeals to me and I would consider adding the shares to my holdings.