Investing for passive income requires a long-term mindset. The returns from dividend stocks start small, get bigger, and eventually add up to something substantial.
All of that takes time. But that means it’s important to get started as soon as possible — if the right opportunities are available.
I’m aiming to build an investment portfolio that can generate passive income for me for life. With that in mind, here are two stocks that are on my list to buy in February.
Rightmove
My top pick for passive income might seem like a strange choice. At 1.3%, Rightmove (LSE:RMV) doesn’t exactly have an attractive dividend yield.
The company’s dividend is growing rapidly, though. Over the last 10 years, Rightmove’s dividend has increased by an average of 15% per year.
If that carries on, then after 25 years, I’ll be earning 45% per year on my initial stake. In other words, a £1,000 investment today could be paying £450 per year in passive income.
It’s important to note that the company’s dividend growth hasn’t been linear, though. In 2020, Rightmove cut its dividend entirely and there’s always a risk that this could happen again.
A weak UK housing market — such as the one we’re experiencing at the moment with house prices falling since last August — could cause that to happen. But I see this as an opportunity.
I think that Rightmove has a strong balance sheet, terrific cash generation metrics, and a buyback programme that can help boosting the shares going forward. That’s why I’m looking to buy it this month.
Citigroup
Todd Combs (a Berkshire Hathaway investment manager) recently gave an interview where he talked about how Warren Buffett finds stocks to buy. That leads me to Citigroup (NYSE:C).
According to Combs, three things are important. One is a forward price-to-earnings (P/E) ratio under 15, another is a business that will be stronger five years from now, third is a company that can grow earnings at 7%.
I think that Citigroup checks the boxes here. Let’s start with the easy bit — the stock currently trades at a forward P/E ratio of just under 8.
Will the business be in a better position five years from now? I think it will.
Citigroup is currently restructuring its operations. That process might take some time, and there’s a risk it might prove expensive in the short term, but I’m expecting it to be completed by 2028.
The end result should be a stronger business than the current one. The company is looking to become more efficient by focusing on its core strengths and disposing of peripheral operations.
Lastly, I think the business can achieve a 7% annual return. Citigroup currently achieves a return on equity of 8%, and I think this will only increase as the company becomes more efficient.
Citigroup shares might be out of fashion at the moment. But I’m looking to buy the stock for its 4% dividend yield and opportunities for future business improvement.
