3 stocks that could create lasting passive income

When it comes to passive income, the most important thing is buying shares in companies that can keep performing well for a long time. 

| More on:
Passive income text with pin graph chart on business table

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.

 The secret of Warren Buffett’s success in building wealth is an ability to focus on the long term. And it’s equally important for investors looking to earn passive income.

According to Buffett, what matters the most in the long run is being invested in the right companies. With that in mind, here are three that I think are likely to prove durable.

Unilever

Buffett has had a lot of success with Coca-Cola and this has been built on steady growth over a long period of time. I think Unilever (LSE:ULVR) is similar in a number of ways.

The company operates in an industry where demand is relatively stable. And it has an important competitive position, with some of the top brands in various categories.

Maintaining this position isn’t easy, though. There’s not much stopping consumers switching to cheaper alternatives and, even with Unilever’s brands, this is a constant risk. 

Despite this, the company has managed to increase its dividend consistently in the past. And I expect this to continue going forward.

Greggs

I think Greggs (LSE:GRG) is hugely underrated from a passive income perspective. The business model is relatively uncomplicated, but it’s highly effective. 

It’s so effective that the company is currently struggling to keep up with demand. As a result, it’s opening more stores and expanding its manufacturing capacity. 

One potential risk is the emergence of GLP-1 drugs. These have been showing up in the US, but if they make their way this side of the Atlantic, demand for sausage rolls could suffer.

The combination of low prices and a consistent product is a powerful one, though. I expect Greggs to keep generating more cash in the future and returning this to shareholders. 

Barclays

Barclays (LSE:BARC) is a business in transition at the moment. But I nonetheless think it’s an interesting passive income opportunity for investors to consider. 

Importantly, the company announced in February that it plans to maintain its dividend as it restructures its operations into five new divisions. And the current yield is just over 4%.

The biggest risk is probably interest rates remaining high. This would cause investment banking activity to remain subdued and increase the danger of loan defaults. 

While there will inevitably be some ups and downs, I expect Barclays to do well over time. And I think this will lead to substantial returns for shareholders in the form of dividends. 

UK shares

In general, UK shares currently trade at a discount to their US counterparts. I think this means there are some great opportunities for investors looking to earn a second income.

What matters for passive income is how much cash a business is going to generate over the long term. And that comes down to its ability to remain competitive over time.

With Unilever, Greggs, and Barclays, I think all three have good prospects. This puts them on my list of stocks for passive income investors to consider buying.

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.

Stephen Wright has positions in Unilever Plc. The Motley Fool UK has recommended Barclays Plc, Greggs Plc, and Unilever 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

Could this beaten-down UK growth stock be the next Rolls-Royce?

Mark Hartley feels Rolls shares have had their time and are running out of steam. Now he’s searching for the…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 10% in a month! What’s gone wrong with the BAE Systems share price?

Harvey Jones suspected all was going a bit too well for the BAE Systems share price. Things went wrong immediately…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Are BT shares still a bargain after climbing 30%?

BT shares are finally showing signs of life after years in the doldrums. Harvey Jones thinks this may point to…

Read more »

Investing Articles

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »