Warren Buffett, the world’s most successful investor, believes passive income is a key to wealth. He says: “If you don’t find a way to make money while you sleep, you will work until you die.”
He means that if I make the right investment, my money never sleeps. I can benefit from regular dividends that are then reinvested to build my income in the long term.
However, to succeed I need solid foundations, in the form of shares that are stable and secure. There is no point chasing a 10% dividend yield only to find that the value of my shares has dropped 50% over the same period.
So, when choosing two UK shares for a passive income, it is important to consider my options carefully.
A thirst for income
That is why my first key investment is Britvic (LSE: BVIC). The global soft drinks giant operates in a sector we can all raise a glass to. It sells leading brands such as Pepsi Max, J2O, Robinsons and Gatorade, which generated more than £1.6bn in its key markets last year. It also delivered a healthy dividend yield of 4% to shareholders.
After a good Christmas, its executives have a focus on cost control that I feel will continue to reward investors, despite the shaky global economy. I am also confident that returns will beat the income that bank investment accounts have to offer following recent rises in interest rates.
Furthermore, the share price has proved pretty stable through turbulent times, which means my initial investment should retain its value.
This combination of factors are the essential ingredients of building a passive income, so I expect my investment in Britvic to increase as the years progress.
Just like Britvic’s drinks, I know what I am getting. Which, in this case, is a good investment that should generate strong long-term returns.
A call for improved performance
My second investment is one where timing is everything. Vodafone (LSE: VOD) has seen a drop in its share price in recent years.
Investors are worried about falling revenue in mainland Europe. Even chief executive Margherita Della Valle acknowledges there are areas where the business ‘can do better’.
She has several initiatives underway to deliver hundreds of millions of pounds worth of cost savings in the next three years and manage its sizeable debts.
The share price reflects the size of the challenges ahead in steering such a massive global company, with a fall of 59% over the past five years.
That doesn’t seem like the stable platform on which passive income is built. But market jitters have made it good value, I believe. Furthermore, an 8% dividend yield will help to offset any further falls in value, although I think it is already at bargain basement levels.
There is a significant potential upside to the telecommunications giant at its current price. As a long-term investor, I think it has all the ingredients to deliver generous returns from both share growth and high-yield dividends in future.
