As an investor who is primarily focused on growth and disruption, picking solid and reliable passive income stocks can seem somewhat underwhelming. That is why it is important to remember that when we talk about passive income stocks, we are talking about companies that deliver a dividend purely by virtue of owning them. This is a powerful selling point for an investor, even for growth-focused investors like myself, as the income received can also be reinvested.
It’s worth noting that high dividend yields don’t automatically mean superiority, as we are looking for reliable passive income that can be reinvested — and too high of a yield can be considered a risk to long-term company prospects.
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Phoenix Group Holdings
My first pick is insurance and savings giant Phoenix Group Holdings (LSE:PHNX).
Like much of the market, Phoenix’s share price has come under selling pressure since its peaks in 2021 and, despite a strong start to the year, is currently trading at 628p, 17% off its 52-week high.
Even taking into account the current volatility in the market, this drop looks overdone, with Phoenix once again declaring annual growth in free cash flow, new business and profitability.
Phoenix Group boasts an impressive track record of stable growth in both profitability and dividends, providing shareholders with a whopping 8% dividend yield. This meant the company boosted its investors’ coffers with 3% organic dividend growth on the year, and keeps it in line with the sustainable 4% compound annual growth rate (CAGR) in dividends it has provided shareholders since 2011.
My one concern here would be the maturity of the underlying businesses owned by Phoenix and whether such levels of growth can be maintained under stricter market conditions. That being said, Phoenix has a rich history of smart strategic acquisitions, and so I certainly wouldn’t bet against its ability to maintain this level of income over the coming years.
Next up, a potentially surprising choice, in GlaxoSmithKline (LSE:GSK), currently trading at 1,771p.
A £90bn-cap pharma giant wouldn’t normally be considered a surprise pick, but growth in revenue for Glaxo has been relatively slow, and it has not raised dividends since 2014, keeping the yield at a steady 4.5%. Nonetheless, that is still well above the current FTSE 100 average yield of 3.3%.
Glaxo also had a strong first quarter with revenue and net income increasing by 32% and 68% year on year respectively. This has been reflected somewhat in performance with its share price demonstrating considerable relative strength in the face of a protracted sector pullback.
Moreover, the company operates in a sector that tends to outperform both going in and coming out of recession cycles which goes some way to offsetting growing pains.
Given the pressure the biotech sector has come under, coupled with GlaxoSmithKline’s cash position, there also appears to be some attractive merger and acquisition possibilities to shore up its pipeline. Overall, GSK will be a key pick for my passive income portfolio going forward.