Despite receiving zero passive income, I reckon these are the happiest shareholders on earth!

One of the ways I judge a stock is by the level of passive income it offers. But some investors appear satisfied receiving no dividends at all.

| More on:
Passive and Active: text from letters of the wooden alphabet on a green chalk board

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.

Receiving passive income makes me happy. Getting money for doing nothing lets me buy more shares, hopefully increasing the level of dividends I receive the next time a payout’s due.

To be honest, I have no idea whether Nordic companies pay generous dividends. But in March, the United Nations declared that — for the seventh consecutive year — Finland was the happiest country on earth. A proximity to nature, personal freedom and a good work/life balance were cited as the principal reasons why they’re so happy. Passive income wasn’t mentioned.

The Oracle of Omaha

But there’s a group of people I believe are happier than both me and the Finns. They’re shareholders in Berkshire Hathaway, billionaire investor Warren Buffett’s investment company.

Between 1964 and 2023, the company’s share price grew by 4,384,748%. During the same period, the S&P 500 increased by ‘only’ 31,223%.

And as usual, during the first week of May, it held its annual meeting in Omaha. With shuttle buses organised from local hotels, a $6 BBQ Meal Deal and the opportunity to buy exclusive rings, watches and fine gifts, I reckon there was a holiday-like atmosphere about the place.

And it’s no wonder. With one ‘A’ share costing over $600,000, the ‘typical’ shareholder is probably wealthier than most Americans.

Of course, there are no guarantees when it comes to investing. But the company’s share price has increased during 48 of the past 59 years. Achieving an average annual growth rate of 19.8% over such a long period’s remarkable.

That’s why I reckon they are such a happy bunch, particularly those from Finland!

And yet the company’s never paid a dividend.

Personal experience

By contrast, my portfolio’s stuffed with high-yielding shares generating good levels of passive income. And most of them are members of the FTSE 100.

My current favourite is Legal & General (LSE:LGEN). Based on its 2023 dividend, it’s currently yielding 8.1%. And as the chart below shows, it has a long track record of steadily increasing its return to shareholders.

Source: company annual reports

Of course, dividends are never guaranteed. But I’m hoping for future increases as the company has ambitious growth plans.

Brokers are expecting earnings per share of 24.66p in 2024. This implies a forward price-to-earnings ratio of 10. This is significantly lower than others in the sector. For example, the shares of M&G, another financial services provider, are currently trading on a multiple of 16.

Legal & General also has a strong balance sheet. At 31 December 2023, its Solvency II ratio was 224%. This needs to be above 100% to meet its regulatory requirements.

However, its 2023 results were disappointing. They were lower than analysts’ consensus forecasts. And its investment management division saw a £154m (11.7%) fall in the average value of assets under management during the year.

Also, the business as a whole is sensitive to the wider economy. Any sign that growth is stuttering, particularly in the UK and US, and investors are likely to become nervous.

But I’m encouraged by the company’s plans to acquire £8bn-£10bn of new pension schemes each year. And if Legal & General continues to grow its dividend — and I receive the levels of passive income I’m expecting — I’ll be a happy man.

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.

James Beard has positions in Legal & General Group Plc. The Motley Fool UK has recommended M&g 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

Investing Articles

£20,000 in savings? Here’s how I’d target a £2,219 monthly passive income with FTSE 100 shares

Investing in FTSE 100 shares can be a great way to turn a regular investment into a life-changing passive income…

Read more »

Investing Articles

These are the most popular 2024 Stocks and Shares ISA picks so far

After a few tough years, it looks like the 2024 Stocks and Shares ISA season is getting off to a…

Read more »

Investing Articles

This FTSE 100 ETF may be the simplest way to become a stock market millionaire

Ben McPoland considers one very straightforward stock market investing strategy that could lead to a million-pound portfolio.

Read more »

Investing Articles

I’d buy 11,220 Legal & General shares for £200 a month in passive income

Our writer considers how much money investors would have to put into Legal & General (LON:LGEN) shares to target £2,400…

Read more »

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

These 2 magnificent FTSE 250 shares are on sale right now!

These FTSE 250 companies still look cheap, despite recent share price gains. Here's why our writer Royston Wild thinks they’re…

Read more »

Blue NIO sports car in Oslo showroom
Growth Shares

Down 36% in 2024, how low could NIO shares go?

The electric vehicle sector has seen some tremendous volatility in recent years, but what does the future hold for NIO…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

£5,000 in savings? Here is how I would invest in income shares

This Fool has been searching for ways to generate a passive return via income shares.

Read more »

Market Movers

The Keywords Studios share price just jumped 63%. Time to sell?

The Keywords Studios share price has soared on the back of takeover talk. Here, Edward Sheldon explains what he’d do…

Read more »