If I’d invested £20k in these 5 shares a year ago, this is how much passive income I’d have now

Dividend shares can be an excellent way to earn passive income. Our writer assesses his top dividend picks, past and present.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A front-view shot of a multi-ethnic family with two children walking down a city street on a cold December night.

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.

When it comes to investing, it’s important to reflect on past and current strategies. I created a passive income plan around a year ago, so I thought it would be worth assessing how it’s going. And I want to see whether I’d buy the same dividend shares today.

Keeping score

The income shares that I was targeting were Phoenix Group, Rio Tinto, Imperial Brands, Land Securities, and NatWest Group.

If I had invested £20,000 into this basket of shares, it would be worth around £25,400 today. This 27% gain also includes dividends. Note, that’s greater than the FTSE 100, S&P 500 and Nasdaq 100.

Should you invest £1,000 in Smurfit Kappa Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Smurfit Kappa Group Plc made the list?

See the 6 stocks

Not bad for a bunch of ‘slow-growth’ dividend shares. In terms of passive income, I would have earnt around £1,600 in dividends.

At the time, this selection offered an 8% dividend yield. Today that has dropped to 6.9%. So what would I do now?

Although the original five shares could continue to offer a decent passive income, I’d make some small adjustments.

New passive income pick

First, I’d swap NatWest Group for HSBC Holdings (LSE:HSBA). NatWest currently has a forecast dividend yield of 5.6%, whereas HSBC offers 7.5%.

HSBC has also planned a $3bn share buyback programme this year. That’s up 50% from the $2bn announced the prior year.

Buying back shares can support a company’s share price as fewer shares are available to buy. Like Warren Buffett, I’m a big fan of share buyback programmes.

HSBC’s investment in its wealth departments should deliver more diversified revenue, even in a lower interest rate environment. Interest rates are likely to turn lower now as central banks attempt to support a slowing economy.

Its share price has lagged that of NatWest this year. Its exposure to a weakening economy in China hasn’t helped. In the near term, this could hold the shares back.

That said, I’m looking ahead at the coming year. A lagging share price and chunky dividend yield looks like an opportunity to me.

A mindful swap

Next, I’d remove Imperial Brands from last year’s list. Its share price has risen by 36% over the past year. This has resulted in the yield dropping from 8.6% to 6.5%.

The sector appears to be in favour due to its defensive characteristics. And the risk of removing this investment is that its share price could climb higher along its recent trend.

In its place, I’d add insurance giant Aviva. It currently offers a 7% dividend yield. This has managed to hold steady for several years.  

There’s no guarantee it will continue to do so of course. Dividends come from profits, so I’d be on the lookout for any signs of economic slowdown.

That said, right now, this business is steadily growing and looks promising. In the first half of the year, pre-tax profits jumped by 50%. It enabled the company to raise its interim dividend by 7.2%.

Aviva also executed a £300m share buyback, and indicated that it intends to distribute regular returns to shareholders going forward.

To summarise, my new selection of passive income shares includes Phoenix Group, Rio Tinto, Aviva, Land Securities, and HSBC. Hopefully these picks will provide both chunky dividends and share price growth over the coming year too.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings, Imperial Brands Plc, and Land Securities Group Plc. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »