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.
Legal & General
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.
