3 top UK dividend shares to consider buying for lasting passive income

These dividend shares might look a bit risky for taking home cash right now. But building a pot for future income’s a different game.

| More on:

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.

There are three things I want to see in dividend shares — a strong dividend policy, a cash cow business, and long-term safety. Here are three stocks I think are worthy of further research with that in mind.

Top insurance

Can insurance shares be considered safe? When it’s Legal & General Group (LSE: LGEN), and we look at the long term, I think they can.

Legal & General does pensions, asset management, and invests in a diverse range of assets. It doesn’t insure space rockets.

In the short term, it can be volatile, like most financial stocks in the past decade. So maybe we’ll see an up-and-down share price, and a dividend that could face pressure at times.

But in the long term, I see a solid cash cow in this business. And the firm does prioritise dividends. In its results updates, it tends to talk about “confidence in our dividend paying capacity” and things like that.

There’s a forecast yield of 8.8%.

Safe as them

Next up, a company that builds houses. It’s Taylor Wimpey (LSE: TW.), with a forecast 6.6% dividend. Again, the safety might look a bit suspect in the short term. Pressure on the UK property market can squeeze the share price and the dividend, as we’ve seen so recently.

But what about the long term? Well, the country’s in the grip of a chronic housing shortage, and a high proportion of people want to buy rather than rent. That has to be good.

And what does Taylor Wimpey say in its trading updates? I read about “an attractive market with significant unmet demand“, a “strong landbank“, and things like that.

With its last FY results, the firm also spoke of a “dividend policy to return 7.5% of net assets per annum, or at least £250m annually“.

Rock solid

Finally, Rio Tinto (LSE: RIO), which has some things in common with the others. It’s been through a down spell. And we’ve had an erratic few years for the share price.

The dividend yield’s been variable too, but currently offers a forecast 6.5%.

Rio Tinto’s one of the world’s real mining giants with a variety of products. It has copper, iron, aluminium, lead, gold, diamonds… and most of its income derives from industrial metals, not vanity products like gold and diamonds.

In the long run, there’s not going to be an end to demand as long as human industry still exists on the planet, is there?

And “we will continue paying attractive dividends,” said CEO Jakob Stausholm at FY results time.

Risk and safety

Talking of safety, these three share the same kind of risk. It’s cyclical risk, as they’re all in businesses that typically go through up and down cycles over the years.

So I’d never touch any of them if I didn’t intend to buy and hold for a decade or more. And to take home passive income now? No, maybe not.

But to build a pot, through dividend reinvestment, to generate passive income in the future? Yes, I invest in these sectors.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

2 industry-leading value stocks investors should consider buying

These value stocks are at the top of their respective industries, and look like current bargains with the potential to…

Read more »

Black father and two young daughters dancing at home
Investing Articles

Just released: our 3 top small-cap stocks to buy before August [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

If I’d put £5k in a FTSE 100 index fund 10 years ago, here’s what I’d have now!

Charlie Carman explores the performance of the FTSE 100 index over the past decade and the merits of passive versus…

Read more »

Investing Articles

£15K stashed away? I could turn that into a second income worth £49 a day!

This Fool explains how she would look to gain a second income through investing in UK stocks, and the steps…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

With the Apple share price near an all-time high, would I be crazy to buy more?

After touching all-time highs yesterday, the Apple share price is on a roll. But is there still enough growth ahead…

Read more »

Investing Articles

Nvidia stock has fallen 13% from its 52-week high! What next?

Our writer explains why Nvidia stock has dipped recently and highlights some risks associated with investing in the AI leader…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

The AstraZeneca share price is up 88% in 5 years, but is it just getting started?

The AstraZeneca share price has had a great few years, as acquisitions and clinical trials delighted shareholders. So is there…

Read more »

Investing Articles

Here’s why I’m watching the Anglo American share price

The mining sector has always interested investors. But after a flat few years, I'm wondering what's next for the Anglo…

Read more »