If I were retiring tomorrow, I’d snap up these 3 passive income stocks!

Our writer was recently asked which passive income stocks she’d be happy to buy if she were to retire tomorrow. Here are her picks.

| More on:

Image source: Getty Images

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.

A big part of my investment aim is to ensure I have a passive income stream for when I retire.

I do wish I was retiring tomorrow, but I’m not quite there yet. However, I do feel the retirement age some mornings.

Let’s say I was, and had to put all my money into just three stocks. I’d choose National Grid (LSE: NG.), Barratt Developments (LSE: BDEV), and Legal & General (LSE: LGEN).

Here’s why!

National Grid

The UK’s sole owner and operator of the gas and electricity transmission system is a no-brainer buy for me.

A big reason for this is the firm’s monopoly on operations. A lack of competitors, as well as defensive traits linked to the fact that energy is a basic requirement for all, excites me. This means the firm can continue to generate healthy revenues, and reward shareholders.

At present, a dividend yield of 5.5% is attractive, and higher than the FTSE 100 average of 3.9%. However, it’s worth remembering that dividends are never guaranteed.

From a bearish view, there is a chance that the government could intervene and curb payout levels. This would hurt my dividend-seeking ambitions. Plus, although energy is essential, the sheer amount of investment needed to maintain a critical piece of infrastructure isn’t cheap. This investment could hurt payout levels too.

Barratt Developments

As one of the largest housebuilders in the UK, Barratt could be primed to benefit from the current housing imbalance in the UK for years to come.

At present, demand for homes is outstripping supply by some distance. Add to this a growing population, and there’s a money-making cocktail the business could capitalise on to provide juicy dividends for years to come.

I must admit that there are challenges for the firm to overcome, at least in the short term. Higher interest rates and inflation have hurt build output, margins, and sales. This could hurt performance and returns.

However, Barratt is one of the many stocks that should benefit once the current economic malaise dissipates.

As fundamentals go, a dividend yield of 6% is enticing. Plus, the shares look well-priced to me today on a price-to-earnings ratio of just seven.

Life insurance and retirement investing business Legal & General looks like a great dividend stock to me.

A big part of this is the firm’s extensive experience, track record, and future prospects. Although the past is not a guarantee of the future, the latter excites me. This is because as the UK population continues to grow, an emphasis on planning for the golden years ahead has increased in focus. Legal & General could be primed to benefit and boost performance and returns.

Taking a look at the level of return, an eye-watering dividend yield of 8.8% is hard to ignore.

Moving on to risks, financial services businesses like Legal & General are at the mercy of cyclical headwinds. A bit like now, as economic volatility grips hold, demand for retirement products are superseded by a cost-of-living crisis. This cyclical nature means performance and returns could be impacted down the line.

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.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »