The best dividend stocks to buy for passive income share two qualities, in my opinion. First, they regularly churn out a nice (but not excessive) amount of cash to investors. Second, they possess great records of growing these payouts every (or nearly every) year.
In my experience, many of those that tick both of these boxes tend to be pretty boring companies. And that’s just fine with me! Consistency is the goal here, not excitement.
Let’s look at a couple I’d consider buying if creating a second income was my primary goal.
Reliable payer
Bodycote‘s (LSE: BOY) one example of a business I’d back to keep raising its cash payouts going forward. Why? Because this FTSE 250-listed heat treatment and thermal processing services provider has build up an excellent record of doing just that over many years. There’s even been the odd special dividend along the way.
Of course, just because a company’s thrown money at its investors in the past doesn’t guarantee it will continue to do so, especially if trading takes a knock.
Bodycote’s no exception. It’s worth being aware that recent interim results for the first six months of 2024 mentioned “challenging” market conditions for its Automotive and General Industrial (AGI) division. As a result, the company’s needed to take “a number of decisive actions to balance costs and capacity with near-term demand“.
Don’t get greedy
On a more positive note, the firm made no change to its full-year outlook. This makes me think the 3.7% dividend yield looks safe. In fact, analysts suspect the payout will be covered over twice by expected profit.
Some may scoff at such an average yield when there are other companies offering nearly triple that. But I’d rather receive a lower but rising payout than never receive a higher one. What looks too good to be true often is.
5% yield
Fellow FTSE 250-listed wealth manager Rathbones (LSE: RAT) is another deadly dull dividend demon that’s been increasing the money it returns to investors for donkey’s years.
I find this impressive, not least because it operates in a sector where sentiment can quickly change depending on macro-economic headlines. A smidgen over 5%, the dividend yield’s also chunky and looks likely to be covered comfortably by profit.
One potential fly in the ointment is last year’s merger with Investec Wealth & Management. Although this seems to have gone well, it may take a bit more time to truly judge whether this move was truly in the interest of shareholders.
Cheap to buy
Still, it’s not like the valuation looks stretched. The shares currently change hands for a very reasonable 11 times expected FY24 earnings. That might even turn out to be a bargain in time if July’s interim results are anything to go by.
In a sign that risk appetite’s recovering, Rathbones reported a 3.4% rise in its funds under management and administration for the first six months of 2024.
If and when confidence returns en masse — perhaps after a succession of interest rate cuts both here and in the US — I wonder if I might see a nice positive gain on top of those dividend payments if I were to buy now.
