There’s no such thing as a guaranteed passive income with share investing. Event the most dependable dividend shares can slash, cancel or postpone dividends when a crisis rears its head.
Oil giant Shell hadn’t cut dividends since 1945 until the Covid-19 pandemic came along. Fellow FTSE 100 stock and utility National Grid had decades of dividend growth behind it before cutting it last year to upgrade the UK’s power grid.
However, investors can take steps to reduce the risk of dividend disappointment. Picking cash-rich companies with diversified revenue streams and economic moats can significantly boost one’s chances of a healthy and reliable long-term income.
With this in mind, here are three top stocks to consider.
HSBC
HSBC (LSE:HSBA) is a share I’ve bought for my own portfolio for passive income. Shareholder payouts have risen strongly since they were slashed during the pandemic. The last time they were cut before that was in the depths of the Great Financial Crisis.
Trouble in China poses a near-term threat to profits and the bank’s share price. Yet I’m optimistic ordinary dividends here should keep growing, supported by the company’s robust balance sheet. Its CET1 ratio was 14.6% as of June, which is the highest among any of the FTSE 100’s banks.
I expect HSBC to remain capitalised, driven by high growth in its Asian regions and ambitious cost-cutting across the group. It’s targeting $3bn worth of cost reductions in the next few years.
The forward dividend yield here is 5.2%.
Primary Health Properties
Real estate investment trust (REIT) Primary Health Properties (LSE:PHP) also sits proudly in my portfolio. I’ve used it to leverage the long-term opportunities that come with the UK’s booming elderly population.
The FTSE 250 company is one of the lowest-risk dividend shares out there in my opinion. Under REIT rules, at least 90% of annual rental profits need to be distributed to shareholders. It also operates in the highly defensive healthcare sector where it lets out GP surgeries and other medical buildings.
A large portion of its rental roll is also inflation linked and backed by government bodies.
The trust is vulnerable to changes in NHS policy, but on balance I’m expecting it to remain a lucrative dividend share. Annual payouts have risen every year since the mid-1990s. The forward dividend yield is 8%.
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BAE Systems
BAE Systems (LSE:BA.) doesn’t have the enormous yields of this REIT nor of HSBC. For 2025 its dividend yield is a healthy if unspectacular 2%.
But don’t click off just yet as what it does have is a long record of strong and sustained payout growth. Dividends have risen for just over 20 years on the spin. Over the past half a decade they’ve risen at an impressive average yearly rate of 8%.
I think it can maintain its position as one of the FTSE 100’s best dividend growth stocks. It’s another very cash generative business, and — despite the threat of high sector competition and failure in any of its products that are risks to the business — I feel cash rewards should keep climbing as global defence spending booms.
