Habitual Fool readers may gather that my interest in passive income sometimes borders on the obsessive. (In my defence, I am over 55, so retirement is on the horizon at some point.)
My favourite form of unearned income doesn’t come from, say, savings interest, bond coupons or buy-to-let income. Like billionaire business tycoon JD Rockefeller, “I love to see my share dividends coming in”.
Two dividend dynamos
The big problem with cash dividends is that they are not guaranteed. Hence, future payouts can be cut or cancelled at short notice. Also, most London-listed stocks don’t pay dividends to shareholders, though most FTSE 100 firms do.
Right now, my family portfolio includes 18 UK stocks that we own for passive income. For example, here are two ‘dividend champions’ that we aim to hold for years, if not decades.
1. ITV
Founded in 1955, ITV (LSE: ITV) is the UK’s leading commercial terrestrial broadcaster. Alas, its core revenues from advertising have been hit as companies curb their TV spending. However, its production (content), digital, and streaming arms are going great.
As I write, ITV shares stand at 72.2p, valuing this FTSE 250 business at £2.9bn. This leaves this stock down 8.3% over one year and 39.5% lower over five years. But generous dividends provide a substantial boost to these returns.
Currently, ITV shares offer a dividend yield of 6.9% a year — well ahead of the 4% on offer from the Footsie. As shareholders since mid-2022, my wife and I love ITV’s market-beating passive income, which came to 5p a share in 2022 and the same in 2023.
It’s not easy competing for viewers with global streaming services, but I see ITV as a long-term hold — despite weaker revenues, earnings, and cash flow in 2023-34.
2. Legal & General
And now for something completely different. Founded in 1836, Legal & General Group (LSE: LGEN) is one of the UK’s top providers of life insurance and investment products. Today, it looks after more than £1.3trn of assets for around 10m clients.
While working in the financial world for 15 years, I became a great admirer of Legal & General, its management and its business model. However, while the share price is up 9.2% over one year, it has fallen 8.9% over five years (excluding dividends).
As I write, the share price stands at 246.8p, valuing this storied group at £14.8bn. At these levels, this stock offers a passive income of 8.2% a year — more than double the FTSE 100’s cash yield.
If I could own all of this business, I would be delighted. Happily, my wife and I have owned this stock since July 2022, collecting 19.37p a share in dividends in 2022-23 and 20.34p for 2023-24. Together, these are worth a tidy 16.1% of our initial investment. Nice.
Of course, as a leading asset manager, L&G’s shares tend to do poorly when financial markets slump — as happened in the Covid-19 crisis of 2020-21. Nevertheless, we have no intention of selling our stake and losing out on powerful passive income!
