Here’s a 5%-yielding mouthwatering passive income stock to consider!

Sumayya Mansoor explains why she likes the look of this passive income stock with its enticing yield as well as excellent dividend record.

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Boosting my passive income is one of the biggest aims of my investment portfolio. With that in mind, one stock I like the look of is City of London Investment Trust (LSE: CTY). Is now a good time to buy some shares? Let’s take a closer look.

Investing in UK stocks

City of London Investment Trust was established in 1861 and through investing in quality UK stocks, it aims to outperform the FTSE All Share index through capital growth and income generation. As part of its portfolio, it owns shares in blue chips such as Shell, BAE Systems, Unilever, and HSBC to mention a few.

So what’s been happening with City of London shares? As I write, they’re trading for 402p. At this time last year, they were trading for 387p, which is a 3% rise over a 12-month period. It is worth mentioning that many stocks across the world have fallen due to tough economic conditions including rising inflation and interest rates.

The investment case

I’m buoyed that the City of London Trust offers me exposure to lots of top stocks, as well as diversification. The few I mentioned earlier are big players in their respective industries. Access to mature businesses with large market presences, reliable performance records, and resilient balance sheets is very attractive. This is because many of these businesses can weather any economic downturn well, like now. Accessing all of these names through purchasing one stock is definitely a positive for me personally.

Next, from a passive income perspective, City of London’s current dividend yield stands at 5%. This is higher than the FTSE 100 and FTSE 250 index averages of 3%-4% and 1.9% respectively. Furthermore, it has achieved a remarkable feat in increasing its annual dividend every year since 1966! Not many stocks can attest to such positive performance. However, I do understand that dividends are never guaranteed.

From a bearish perspective, The City of London does have some stocks in its portfolio that don’t perhaps appeal to me as an investor. An example of this is oil stocks, such as Shell. The rising green and net zero movement and move away from traditional fossil fuel concerns me and the impact it could have on these businesses.

Another risk is that of rising interest rates and the pressure it is putting on earnings which could hinder payouts from The City of London’s biggest passive income stocks. In the short term, dividend payouts could be impacted and I’ll keep a close eye on developments.

A passive income stock I’d buy

Overall, I like the look of The City of London Investment Trust. I’m pleased by its remarkable dividend payout record. Furthermore, an attractive yield as well as access to several blue-chip stocks is an enticing factor for me when reviewing its investment viability for my holdings.

I’ve decided that the next time I have some spare cash to invest, I’m going to buy some shares in The City of London Investment Trust. From a passive income perspective, it looks like one of the best options available to me out there.

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.

Sumayya Mansoor 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.

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