When seeking passive income, investors have to know what they need. Is it a dependable, regular income today? When I reach that stage, I’ll turn mostly to investment trusts. I’ll go for the ‘Dividend Heroes’ chosen by the Association of Investment Companies.
The’ve all lifted their dividends for at least 20 consecutive years, with some achieving far more. City of London Investment Trust and Bankers Investment Trust, for example, have made it 56 years in a row.
Until I decide to draw an income, I can reinvest my dividends. It doesn’t matter if they’re a bit erratic while I’m still building my retirement pot. Today, I’m looking at three FTSE 100 stocks I bought to help build a long-term passive income portfolio.
Bank
Lloyds Banking Group (LSE: LLOY) will have disappointed investors. Well, presumably it will if they wanted share price gains. Over five years, Lloyds shares are down 20%.
But I’m happy with that. While I’m reinvesting dividends to build my pot, I want high dividend yields so I get more cash. And I want cheap shares so I can buy even more with it. Other than the Covid cut, Lloyds has been paying decent dividends. Forecasts put the yield at 4.5-5.5% over the next few years, which is good.
The big risk is that we face recession in 2023, and that will surely put even more pressure on bank shares. But with my long-term investing horizon, I can wait it out.
Houses
Persimmon (LSE: PSN) is among my chosen cash cows. It’s another that’s been paying big dividends in recent years. I can’t overlook the share price though, down around 35% in the past 12 months.
It’s all down, again, to economic pressures, inflation, recession. Oh, and falling house prices. I expect the property market to be under pressure for at least the current year, and very possibly longer. And that could harm dividend prospects. Last year’s ordinary dividend however would yield more than 8%, if repeated.
Unfortunately, the share price has been picking up in 2023. That means next time I buy more shares I won’t get as many for my money as a few months ago. But I reckon I should still see good long-term dividends.
Insurance
In what seems like a recurring story for me, Aviva (LSE: AV.) shares have also fallen since I first bought.
Once widely considered bloated, the insurance giant has been slimming down. And I think it now looks like good long-term value. Forecasts suggest a dividend yield of around 6.5%, which will do me just fine. I’m very happy to let that accumulate and put it towards buying more shares.
I see a bit of additional risk with Aviva, above the general pressure facing financial stocks right now. The thing is, it’s still largely an unknown in its current form. After divestments, Aviva is left with its core insurance markets in the UK, Ireland, and Canada. And the historic track record really doesn’t say much about those. But I’m happy to hold, and buy more when I have the cash.
