I’ve been buying UK shares to secure passive income streams for some years, and right now I see a few very attractive options.
But with the stock market rising, forcing dividend yields down, what might I buy if I could start with £12,000 to invest today?
Lloyds Banking Group
I’ve always liked financial stocks. And I would have to choose one I already hold, Lloyds Banking Group (LSE: LLOY).
Should you invest £1,000 in Lloyds Banking Group right now?
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Lloyds shares are doing well, up 25% so far in 2024, and that’s dropped the forecast dividend yield to 4.7%. So it looks like the best time to buy could be behind us.
The shares sell for 10 times forward earnings, and that might not be super cheap. But it would drop to only around seven times based on 2026 forecasts.
And by then, if the analysts are right, we could see the dividend up above 6% again. And whenever the chance arises, the board reminds us of its “progressive and sustainable ordinary dividend policy“.
This year is still a dangerous one, mind. Profits are down on last year, and the depressed housing market is hurting. Cautious investors might want to wait and see how 2024 turns out.
National Grid
I rate National Grid (LSE: NG.) as the best passive income stock I’ve never bought. And after the share price slumped in May, this might be one of my best chances ever.
The price fell after the firm launched its £7bn rights issue, which took the market by surprise. It’s all about expanding its energy infrastructure in the UK and US, as energy generation and storage move to new technologies. That seems like a good thing.
But those folk who want to be able to ignore their income stocks, expect them to never make waves, and just keep taking the dividends, seem to have been shaken by it.
It does, though, lift the forecast dividend yield to 6.1%, the best its been for some time, and that’s the key attraction.
My main fear is that, having done it once, National Grid might be bold enough to raise new capital again in the coming years. But I’d be happy to take that risk.
Taylor Wimpey
My third pick was tricky, as most of my top dividends now are all in financials, and I’d need diversification. But it has to be Taylor Wimpey (LSE: TW.), which has had a tough few years.
Interest rates are high, and mortgages are expensive. And though rates seem likely to start falling, I can’t see the super low rates we enjoyed so recently coming back any time soon.
A tougher property market could hurt dividends. And that could in turn send the recent Taylor Wimpey share price mini recovery back down.
But two things would make Taylor Wimpey a passive income buy for me. One is a forecast dividend that’s still up at 6.1%. And the other is the UK’s long-term housing shortage. Hmm, didn’t the new government just say something about boosting construction?
