My top 6 stock picks for passive income!

Dividend-paying stocks provide me with passive income and a useful revenue sources. Here are my top picks.

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.

Entrepreneur on the phone.

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.

Dividend stocks providing passive income form a large part of my portfolio. These stocks provide a useful revenue stream that involves minimal input from me. Personally, I reinvest most of my dividends to benefit from compound interest, but for others, it can complement their hard-earned salaries.

Currently, with inflation hitting highs not seen in decades, I’m on the lookout for stocks offering attractive and sustainable dividends. So, here are my top five picks right now.

Lloyds

Lloyds doesn’t offer the biggest dividends on the FTSE 100, but it’s sustainable. And with interest rates rising, the bank could become more profitable. Higher rates mean higher margins. However, the bank isn’t overly diversified. Mortgage make up 71% of its loans. I’m upbeat on the property market in the long run, but there could be some short-term pain.

M&G

M&G is a UK investment manager offering a very attractive 8.4% dividend yield. Pre-tax profits took a substantial hit in 2021, with losses resulting from short-term fluctuations hitting investment returns and higher restructuring costs.

However, assets under management stayed flat at £370bn. HSBC is certainly upbeat on M&G’s long-term prospects, having recently upgraded it to ‘buy’.

Synthomer

Synthomer‘s share price has fallen to to pre-pandemic levels but demand for its acrylic and vinyl emulsions polymers (latex gloves) remains strong. It’s offering a 9.6% dividend yield and trades with a price-to-earnings ratio of just four. Dividend coverage was 2.5 last year.

The company has just taken on a new business unit from the US and a new CEO. There may be some pain while the company adjusts.

Vistry Group

At today’s price, Vistry Group is offering a 6.5% dividend yield. There coverage ratio was a healthy 2.1 last year.

The stock is one of the best performing housebuilders, having exceeded pre-pandemic earnings in 2021. Vistry posted adjusted pre-tax profits of £346m last year.  

The firm recently said that adjusted pre-tax profits will likely come in at the top end of analysts forecasts, between £396.3m and £415m.

Steppe Cement

At today’s price, Steppe Cement has a 9.2% dividend yield and a dividend coverage ratio around 1.8. This is certainly a more niche investment proposition than the others on this list. But Steppe forecasts to do well on the back on long-term trends in the Kazakh housing market. The Kazakh government says demand will remain strong owing to an increasing birth rate and more marriages.

One issue with this stock is the difference between the buying and selling price. I’d need to see the share price rise by around 5% to get my money back, although the dividend would help with that.

Legal & General offers a 7.1% dividend yield at today’s price. Demand for insurance is likely to remain strong, so I see this stock as a good long-term investment. However, it trades at just 7.5 times earnings.

The stock, like many other FTSE 100 heavyweights, has underperformed in recent years. In fact, it’s only up 0.25% in five years.

Despite this, pre-tax profits jumped to £2.9bn last year, way ahead of pre-pandemic levels. Moreover, Legal & General only lifted its dividend in March, so it’s unlikely to be cut in the immediate future.

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.

James Fox owns shares in Lloyds Bank, Synthomer, Vistry Group and Legal & General. The Motley Fool UK has recommended Lloyds Banking Group and Synthomer. 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

After falling 9% in 6 weeks, is this FTSE 100 stock now in bargain territory?

The BAE Systems share price hit a 52-week high on 3 June. Six weeks later, it’s down nearly 10%. Is…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

I love the look of Entain shares, potentially 47% undervalued

Many FTSE 100 companies have been on a tear in 2024, but with Entain shares down nearly 50%, I think…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Could Aviva shares reach £5.84 in the next 12 months?

Some analysts think Aviva shares could soar nearly 19% in the next year. This Fool takes a closer look to…

Read more »

Investing Articles

I’m looking at a once-in-a-decade chance to buy dirt-cheap FTSE dividend shares

Harvey Jones says FTSE 100 dividend shares have been showing signs of life lately but they're still cheap and there's…

Read more »

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

If I’d put £10k in BAE Systems shares 10 years ago, here’s what I’d have now

BAE Systems shares have been on fire over the last decade. But just how much would a £10k investment back…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

My favourite S&P 500 stock is still potentially 52% undervalued

The S&P 500 is where many investors look for the next opportunity, but one of my favourites might just be…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

Here’s why I’m watching the Glencore share price

The mining sector has always been volatile, but with some recent strategic moves, I'm watching the Glencore share price even…

Read more »

Young black female footballer training on stadium pitch
Investing Articles

My JD Sports Fashion share price prediction for the second half of 2024

The JD Sports Fashion share price hasn't yet recovered from January’s slump. So will the retailer's stock bounce back in…

Read more »