Dividends are never, ever guaranteed. But investors can vastly improve their chances of receiving a large and growing passive income by buying dividend shares that:
- Operate in defensive industries, and therefore enjoy long-term earnings stability.
- Have strong balance sheets with low debt and/or impressive cash flows.
- Enjoy robust economic moats (like barriers to entry, patented products and brand power).
- Maintain strong diversification, which protects profits from localised issues.
With this in mind, here are three great dividend stocks I think savvy share pickers should look at today.
iShares US Equity High Income ETF
With holdings in 211 companies, the iShares US Equity High Income ETF (LSE:INCU) could be an effective way for investors to reduce risk and source a long-term income.
Its exposure is spread far and wide, from tech businesses like Nvidia and Apple to classic safe-havens like consumer goods giant Pepsico, pharmaceuticals developer Merck and telecoms provider AT&T. This isn’t all, as it also generates earnings from government bonds and cash, providing additional stability.
Right now, iShares US Equity High Income’s forward dividend yield is a mighty 9%. Its ongoing charge meanwhile is 0.35%, which I consider reasonable.
I think it’s a great diversified fund to consider, even though its focus on Stateside stocks could leave it vulnerable if investors continue rotating away from US shares.
Chelverton UK Dividend Trust
Like a shares-based ETF, investment trusts can also provide high returns while helping share pickers to reduce risk. As its name implies, the Chelverton UK Dividend Trust (LSE:SDV) is designed to supply a steady stream of passive income.
More specifically, this pooled investment vehicle “aims to deliver a high and growing income through investments in mid to small-cap companies exclusively outside the largest 100 UK stocks.” Such smaller companies can be more susceptible to weakness during economic downturns. But again, a wide variety of holdings (it owns shares in 62 companies today) helps to reduce (if not completely eliminate) this threat.
Some of Chelverton’s largest holdings are insurer Chesnara, food manufacturer Bakkavor and Arbuthnot Banking. The forward dividend yield here is an impressive 9.1%.
Aviva
In my opinion, Aviva (LSE:AV.) is one of the best FTSE 100 shares to consider for a long-term passive income. And it’s not just because its 6.3% forward yield is one of the largest on the UK blue-chip index.
The company has significant brand power, which helps protect earnings even during downturns. Its status as the largest life insurer in the UK (market share of 24%) and market-leading positions in other diversified product lines underlines this. It also has a significant position in the defensive general insurance markets to protect revenues when consumers feel the pinch.
On top of this, Aviva has a cash-rich balance sheet it can use to pay large dividends while still investing for growth. Its Solvency II capital ratio was 203% as of December.
Intense competition remains an ongoing threat. But Aviva’s long-term resilience helps soothe any fears I have.
