Earning a passive income represents an ambition shared by many. The idea is to generate an income stream that doesn’t require a significant commitment of time or money.
Among the many methods out there, buying shares in companies is one of the ways in which successful investors have built lucrative passive incomes.
Through this method, investors earn a second income in the form of dividends paid out by companies. However, not all companies pay dividends in the first place and some pay more than others.
With that in mind, I’m sharing five dividend-yielding shares that I’d buy for my portfolio to build a long-term passive income.
Legal & General
Current dividend yield: 7.7%
Problems in the banking sector put significant pressure on the global economy. This means that businesses like Legal & General have seen falling profits amid unstable macroeconomic environments.
However, the group remains in a strong financial position. Bosses recently reported that the only division to see profit fall last year was Investment Management.
I like that the group enjoys a strong market position in the UK financial services industry with a comprehensive product portfolio that serves to insulate business risk.
British American Tobacco
Current dividend yield: 7.7%
Tobacco consumption around the world has been in decline for decades and the trend is likely to continue.
However, British American Tobacco is a titan. Earlier in the year, the group reported full year revenues rising by 2.3% to £26.3bn.
Moreover, what I particularly like about the company is that even with one of the highest yields in the FTSE 100, its dividend payments are covered 1.6 times by free cash flow, meaning the yield looks sustainable.
Aviva
Current dividend yield: 7.4%
A key risk with investing in insurance companies relates to the performance of asset management segments. Here, market volatility, fund liquidity, and poorly executed investment strategies represent risks that can impact overall group performance.
That said, Aviva has a strong market position and being a huge workplace pension provider has helped the group continue to increase its share of the wealth management industry.
The group’s recent results also impress me, with full-year underlying operating profit up 35% to £2.2bn.
Taylor Wimpey
Current dividend yield: 7.7%
Difficult economic conditions have resulted in a tough environment for housebuilders and there is still potential trouble ahead for the likes of Taylor Wimpey.
In my eyes though, the group’s valuation has largely factored this in. What’s more, conditions do seem to be slightly better than previously forecast, with house prices falling slightly of late.
More importantly for those hunting passive income, the current dividend policy is linked to asset value as opposed to earnings. This means I’d be more likely to receive a base level of dividend even in a downturn.
Vodafone
Current dividend yield: 8.2%
Vodafone‘s recent performance has been anything but special. Weakening economic conditions combined with higher energy costs and several Vodafone-specific challenges remain key risks.
Nevertheless, current cash flows cover the group’s prospective yield despite it being so high. As a result, I’m not too concerned for now.
In any case, looking ahead, I’m excited about the group’s growth opportunities in emerging markets such as Africa, where Vodafone is well positioned to benefit thanks to leading market positions worldwide.
