3 all-star dividend stocks I’d buy for a passive income starter portfolio

Charged with starting a portfolio from scratch, Paul Summers knows which stocks he’d prioritise above all others for generating passive income.

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Taking into account time and effort, I reckon there are few better ways of making passive income than the stock market.

But where would I start if I were investing from scratch today? For me, the answer is simple. Buy stocks that are brilliantly consistent in returning increasing amounts of cash to their owners.

Strong and stable

Power provider National Grid (LSE: NG) is an example. It’s one of only a handful of UK companies that have managed to hike dividends every year for decades.

Part of the reason the Grid has been able to do this is down to its earnings being relatively predictable. We all need access to gas and electricity, after all.

This isn’t to say payouts have climbed by the same amount every year. A solid track record is also no guarantee that dividends won’t be cut at some point in the future. Let’s not forget that oil giant Shell was forced to reduce its cash returns for the first time since World War 2 when Covid-19 struck.

That said, I think the inflation-beating 5.8% dividend yield is worth the risk.

As an aside, I suspect National Grid’s share price will rally if/when interest rates are cut later in 2024 due to this payout being greater than what more cautious investors could get from holding bonds.

Temporarily unloved

Guinness, Captain Morgan and Smirnoff owner Diageo (LSE: DGE) is another Premier League UK stock that’s been very reliable when it comes to distributing profits to shareholders. A multi-decade unbroken streak of hikes makes it a near-automatic choice for me if I were looking to build a second income stream from the market.

This is despite the company currently going through something of a sticky patch. Sales have dipped as a result of the cost-of-living crisis, particularly in its Latin America and Caribbean markets.

There’s no way of knowing just when demand will recover. But I struggle to believe that people won’t go back to their favourite premium tipples when the economic clouds lift.

In the meantime, I’d happily collect the 2.8% payout. That may feel pretty low. However, it does look like it will be easily covered by profits. The same can’t always be said for other companies in the index, especially those ‘boasting’ double-digit yields.

Necessary evil

Third on my list of all-star dividend stocks to consider is defense firm BAE Systems (LSE: BA.). Similar to the other companies mentioned, it’s been a solid performer for income hunters over time. The total payout has been consecutively increased for the last 19 years.

Based on recent world events, I can’t see this trend coming to an end any time soon. While armed conflict is a tragic but inevitable part of human existence, it does result in a lot of business for a company like this.

My only real concern with BAE is that its shares have done so well over the last couple of years. As a result, I wouldn’t be surprised to see a bit of profit-taking at some point.

Then again, we don’t try to ‘time the market’ at the Fool. We think it’s far better to simply buy good companies for the long term, regardless of whether they are purchased for growth or income.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems and Diageo Plc. 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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