Income from passive investing sounds attractive. Little effort. No worries. Just sitting back and waiting for shareholder dividends to flood in.
But do buy-and-forget stocks exist? Or should I hunker over a computer watching the share prices move about? Should I pore over every item of news coming from investee companies?
That’s one way of investing. But it’s active rather than passive.
Checking in every so often
For those with a life, a better way may be to take the laid-back approach. After all, billionaire investor Warren Buffett is known for holding stocks for long periods — think decades. So he’s proved there are businesses that can be buy-and-forget investments.
Having said that, Buffett’s known for reading company annual reports. But I bet he doesn’t watch stock price movements, or concern himself with every piece of trifling news. Has he even got his own computer? I’m not sure.
Reading annual reports — or even just skimming them — is a good idea. If we don’t do that, what’s the point of being a do-it-yourself investor? We might as well just bung money in low-cost index tracker funds and ride off into the sunset.
However, a light-touch approach to owning shares can be productive because a long-term holding period often drives the best returns. Being too active can lead to doing silly things, such as buying and selling shares too much because of emotional over-reactions to news flow.
But passive investing needs a couple of things, I reckon.
Two important steps to take
The first is a careful approach to stock selection, and thorough initial research. The second is diversification between several stocks, so all the invested money isn’t concentrated too much.
With a diversified long-term portfolio in mind, I’d consider stocks such as Renewables Infrastructure (LSE: TRIG).
The investment firm has a portfolio of onshore & offshore wind, solar, and battery storage projects across the UK, Ireland, France, Germany, Spain, and Sweden. In short, green energy.
So why has the share price been so weak lately? In today’s world, the sector seems like a no-brainer for investment, at least at first glance.
Well, macroeconomic uncertainty’s affected investor sentiment. For example, things such as forecasts for lower power prices ahead and persistently high interest rates.
Those risks are real and may become an ongoing headwind for the company’s growth in net asset value and cash flow. Many stocks in the sector have been marked lower by the market over the past few months.
A strong record
However, if Renewables Infrastructure can keep up decent cash flow, there’s a good chance dividend payments will continue. After all, the multi-year record of shareholder payments is excellent.
The firm has raised the dividend every year since at least 2018, and didn’t even miss a beat through the pandemic. With the share price near 100p, the forward-looking yield for 2025 is just over a whopping 7.6%.
Over the long haul, I reckon the company has a bright future, so I’d be keen to research further with a view to adding some of the shares to a diversified portfolio of stocks.
