3 top dividend stocks for passive income

Some stocks are simply safer bets than others for making passive income, says Paul Summers. Based on their track records, these could be three of the best.

| More on:

Image source: Britvic (copyright Chris Saunders 2020)

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I reckon there’s still no better hunting ground for UK investors seeking passive income than our home market. But sticking to companies with strong records of returning cash to their owners still makes a lot of sense to me.

Here are three I’d be comfortable buying today if I could find some spare cash.

Boring but brilliant

Power provider National Grid (LSE: NG) is surely one of the dullest companies around. And who wants to own a slice of utility business when there are stocks like Nvidia delivering massive gains across the pond?

Well, I do if I’m looking for dividends. Boring or not, our constant need for electricity and gas means that the Grid’s earnings are wonderfully consistent, at least relative to many of its peers in the FTSE 100.

This stability makes for reliable passive income. It also means that management can afford to raise the amount of money returned every year. And that’s exactly what’s happened for decades now.

Let’s not confuse ‘reliable’ with ‘guaranteed’ thought. The capital intensive nature of what it does means that the £39bn-cap has a truckload of debt on its balance sheet. So that chunky dividend yield — currently 5.6% — should never be taken for granted.

Barring a cataclysmic issue with its infrastructure however, I think this stock takes some beating as a cornerstone income stock.

Habitual buy

A second business that’s shown itself capable of throwing back increasing amounts of cash to investors is FTSE 250 member Britvic (LSE: BVIC).

The owner of drinks brands such as Robinsons, J2O and Tango benefits from shoppers buying its low-ticket items out of habit and regardless of what the economy’s doing. As evidence of this, the company recently reported a strong performance in Q1. That’s despite the UK falling into recession at the end of 2023.

Britvic also operates in a completely different space to National Grid. Now, that won’t stop the share price of either falling during a general market meltdown. But it should offer some protection in the face of possible sector headwinds and the need to alter its dividend policy.

Shares currently change hands on an attractive forward price-to-earnings (P/E) ratio of 13 and come with a 3.8% yield.

Ready to recover?

A final FTSE stock I’d snap up is self-storage firm Safestore (LSE: SAFE). While it hasn’t been around as long as the others, it’s already built a great reputation for paying dividends (and regular hiking them).

Once again, this record could always come a cropper. Speaking of which, Safestore’s shares are down by over 20% in the last year as anything related to real estate has been sent to the dog house. There could be more to come if interest rate cuts come later than expected.

But unless the economic cycle is completely broken, I expect this sentiment to eventually reverse. Moreover, there’s still a “substantial under-supply of quality self-storage capacity across the UK and Europe“, according to the company.

In the meantime, the stock trades on a forecast P/E of 16. That’s far from ludicrously expensive, especially if analysts are soon pushed to revise their earnings forecasts.

For now, the yield of 4.1% looks comfortably covered by profit. Like Britvic, it’s also higher than that offered by the FTSE 250 as a whole (3.4%).

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 Britvic Plc, Nvidia, and Safestore 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.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »