Even among those of us who invest for long-term passive income, we all have different preferences and different takes on risk.
But there’s a handful of stocks and sectors that I keep turning to.
Very long term
I’m going to start with City of London Investment Trust (LSE: CTY), as an example of a kind of investment that many people overlook.
Investment trusts can hold back cash in the best years to keep their payouts going in weaker years. And that helps people who want to take regular income. Now, like any dividend, it still can’t be guaranteed. But it can ease the risk.
In fact, City of London leads the Association of Investment Companies’ list of Dividend Heroes, after raising its dividend for 58 years in a row, currently at 4.7%.
That shows a potential pitfall, though. If it misses one year, I think the share price could take a hammering.
Diversity
With this trust, we get a mix of BAE Systems, Shell, HSBC Holdings, AstraZeneca, and many more. I’d consider buying them all for dividends on their own, but the diversification in one holding is a bonus.
Many other investment trusts are out there, with their own investment strategies. I always hold at least one.
Two sectors
Next, I want to highlight two sectors that have always ranked high among my passive income investments. I’m talking banking and insurance.
I bought some Lloyds Banking Group and Aviva shares some years ago, and I still like them both. Starting today, I’d go for Lloyds again, with a forecast dividend yield of 5.1%.
Risk balance
Its exposure to the mortgage market adds a bit of risk, and we could see volatility while interest rates are high. And I suspect that could be for longer than we might hope.
But I prefer that to the China risk that comes with something like HSBC, on a 7.5% forward yield.
And my insurance pick today? Most likely Legal & General for its 9% yield. I’d take the cyclical risk for a long-term cash cow like that.
Two champions
I’ll finish with two passive income favourites that I’ve never bought, but have often throught I should.
One is British American Tobacco, forecast to yield 8.4% this year. It does depend on the long-term future of tobacco, but alternative products could keep that going for many decades.
And ethical concerns are for individual investors to decide.
Equity shock
National Grid is the other, with a 5.8% yield on the cards. Its monopoly position and its relative income clarity mean a lot of long-term investors love it.
But it did shake confidence a bit with this year’s equity issue, which diluted the dividend a little. After doing it once, the fear is that it might do it again.
Which to buy?
There’ll be wide differences in the stocks that each of us would be comfortable holding in the decades ahead. And I really do think that’s the timescale we need to think about.
But I firmly believe that we can all benefit by at least considering the stocks that other passive income investors like and hold.
