I want to be as confident as possible that I’ll be paid dividends year after year if I’m going to buy shares for passive income.
Fortunately, there’s no shortage of brilliant FTSE 100 stocks with records of doing just that for their investors.
Here are three I’d be comfortable buying today if funds allowed.
Should you invest £1,000 in Prudential right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Prudential made the list?
BAE Systems
Wars are mercifully irregular. So, the idea that defence giant BAE Systems (LSE: BA) could be a great income stock — and one that hikes how much cash it returns every year — seems fanciful. However, that’s been the case for… decades!
I struggle to see how this won’t continue. The invasion of Ukraine and conflict in Gaza have been awful. They’ve also allowed the £40bn cap to enter something of a purple patch, both in terms of trading and popularity among investors.
One concern with buying now, however, is the price of 20 times forecast earnings. That’s far higher than BAE’s five-year average valuation (15 times earnings). Would the stock lose height if expectations weren’t met?
It’s always possible. On the other hand, the world will never be free of bad actors. As a world leader at what it does, I reckon this makes for a uniquely stable outlook among UK shares.
As things stand, the dividend yield is 2.4%.
Unilever
It’s deadly dull when compared to the average US tech titan but Unilever (LSE: ULVR) also has solid income credentials. The relative predictability of earnings (it produces low-ticket items bought out of habit and used by 3.4bn people every day) gives the company a ‘defensive’ feel. It also helps to explain why management is able to increase dividends almost every year.
Of course, no investment is devoid of risk and no income stream is totally secure. As the cost-of-living crisis has shown, shoppers are prepared to switch to cheaper alternatives when funds run low.
With UK inflation now retreating back to the Bank of England’s desired 2%, however, I think those already invested can sleep easy. The 3.4% forecast yield looks likely to be easily covered by expected profit.
This might help to explain why Unilever has trounced the market return in 2024 so far.
The only snag is that I’m now expected to pay the equivalent of 19 times earnings to acquire a stake.
Bunzl
By now, readers have possibly noticed a trend: the most consistent payers tend not to offer bumper yields. At 2.4%, international distributor Bunzl (LSE: BNZL) is no exception. Actually, one might argue that the biggest risk here, aside from a change in management, is the opportunity cost of not earning more income elsewhere.
But buying only the highest-yielding stocks isn’t for me. While there are exceptions, it’s often the case that a yield has shot up because the share price has tumbled.
BY contrast, this is another firm that does something exceedingly dull — delivering items such as cleaning products and food packaging in 33 countries — exceedingly well. Again this has supported annual dividend increases for decades.
I can’t see demand falling off a cliff. Actually, all sorts of businesses and organisations would surely grind to a halt if the supplier ceased to exist.
So, Bunzl would undoubtedly be on my wishlist if I were looking for lasting passive income.
