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:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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

Investing Articles

UK investors are piling into Vodafone! Should I buy this FTSE 100 stock?

This ultra-cheap FTSE 100 dividend stock has been very popular among retail investors lately. What might they be seeing in…

Read more »

Market Movers

This FTSE 250 value stock is up 11% today! Here’s what’s going on

Jon Smith explains why a FTSE 250 stalwart is shooting higher today on fresh news and talks through why this…

Read more »

Inflation in newspapers
Investing Articles

£276bn worth of reasons to invest in UK shares?

Our writer prefers investing in UK shares to holding cash. However, he acknowledges that this approach does carry some risks.

Read more »

Investing Articles

Here’s the latest growth and share price forecasts for Nvidia stock

Nvidia is due to report Q4 results towards the end of February. Should I buy the stock in anticipation of…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Is the party over for the S&P 500 as Trump’s tariffs loom?

Donald Trump's planned tariffs have cast doubts on the future performance of the S&P 500. What should investors do now?

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett continues to invest in this well-known pizza company

Warren Buffett just bought another 1.1m shares in Domino’s Pizza. Should investors follow him into the well-known fast food company…

Read more »

Investing Articles

A £100 weekly income from a Stocks and Shares ISA? It’s possible!

Mark Hartley details how a combination of good stock picks and patience could transform a Stocks and Shares ISA into…

Read more »

Young black colleagues high-fiving each other at work
US Stock

Why Apple stock could be set to soar with the new Alibaba partnership

Jon Smith explains why a new deal relating to the Chinese market could be good news for Apple stock, not…

Read more »