1 share I plan to buy in 2023 for stable passive income

Gabriel McKeown outlines a share in the FTSE 350 that he wants to add to his income portfolio for monthly passive income next year.

| 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.

New year '2023' numbers on stacked wooden cubes

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.

I am always looking for new investment opportunities that will help me to further diversify my long-term investment portfolio. However, as the new year approaches, I am keen to find unique holdings that will provide passive income in 2023. Finding a good quality company that can provide a stable dividend, year after year, is essential to achieving this goal.

My approach

A high-quality company has steady earnings growth, can generate significant free cash flow, and has low debt levels. I like to find companies that combine these strong characteristics with a high dividend yield that has been paid consistently for several years. If this yield has steadily grown over time, this gives me more confidence in the long-term potential of the company.

This is a fairly simplistic approach to finding income-generating opportunities within the FTSE 350. However, often the least complex methods yield the best results. Simply leaving these new investments to produce a consistent dividend, which will compound over time, can boost returns within my portfolio.

30-year dividend history

The first share on my list is Man Group (LSE: EMG), an investment management firm. This company appeared on my dividend filter due to its current dividend yield of 4.9%. This yield is forecast to hit 6% next year. I am encouraged by the stability of this dividend, which has been paid consistently for almost 30 years.

The company had a very impressive 2021, rising almost 65%. After a solid start to 2022, it appears to have lost momentum, and is down 2.7%. However, the share price is still almost 45% above pre-pandemic levels and has a price-to-earnings (P/E) ratio of just 6.5.

Dividend potential

In addition, Man currently has a dividend cover of 2.6, which is forecast to reach 3.0 in 2023. This indicates that the current yield can be comfortably covered by earnings per share (EPS) and further strengthens the dividend. The underlying fundamentals are also very strong, with significant profit margins, reasonable cash generation, and high levels of earnings efficiency.

However, it is important to note that the dividend has only grown in the last year and has fallen significantly from levels paid in precious years. This indicates that dividend growth is potentially vulnerable, especially as forecast turnover and EPS are below the three-year average. EPS is forecast to grow by 16.7% in 2023. This is reasonable but considerably below the three-year average of over 42%.

Nonetheless, I think Man Group presents an excellent opportunity for me to access a reasonably high dividend yield in a company with solid fundamentals. For this reason, I am keen to add the company to my portfolio in 2023 for stable passive income.

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.

Gabriel McKeown has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Black father holding daughter in a field of cows
Investing Articles

A FTSE 100 share that could create generational wealth

Investing in FTSE shares can help individuals pass down a significant chunk of cash to their children and grandchildren, data…

Read more »

Investing Articles

Here’s what the BT share price could mean for passive income investors

The BT share price has been falling for years, but that might be about to change. And dividends could be…

Read more »

Investing Articles

At £4.76, is the Aviva share price a steal? Here’s what the charts say!

Aviva has outperformed the Footsie over the last year. But is there still value in its share price? This Fool…

Read more »

Photo of a man going through financial problems
Investing Articles

Does a 43% price drop make this undervalued UK stalwart one of the best cheap shares to buy now?

After losing a third of its value of the past five years, this might be one of the most undervalued…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

My top 3 picks today for a £20,000 Stocks and Shares ISA

Here are three very different investments to consider for a Stocks and Shares ISA, covering both the UK and US…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The Darktrace share price has been surging — and it could climb higher

I think the Darktrace share price could have more room to run. Despite the competitive AI industry, the firm looks…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

With its 7% dividend, should I be watching the Aviva share price?

Dividend investors will struggle to find many companies with a yield above 7%, so should the Aviva share price be…

Read more »

Investing Articles

Could this be one of the FTSE 100’s best cheap dividend shares?

Looking for the best dividend growth shares to buy? Our writer Royston Wild thinks this FTSE 100 housebuilder might well…

Read more »