Some of the best dividend stocks on the UK stock market can be found in the FTSE 100. I think these businesses could help any investor generate a passive income when owned as part of a diversified portfolio. With that in mind, here are two of my favourite dividend stocks I’d buy for a passive income in 2021.
FTSE 100 champion
Consumer goods giant Unilever (LSE: ULVR), does not offer the highest dividend yield in the FTSE 100. However, I think the company’s payout is extremely sustainable. That’s why I believe it is perfect for a passive income portfolio.
At the time of writing, the company offers investors a dividend yield of around 3%. That’s approximately 1% below the blue-chip index’s average. Nevertheless, the business has an enviable dividend track record. It has increased its distribution every year by an average of several percentage points for a decade.
I think this trend is highly likely to continue. As one of the largest producers of consumer goods in the world, manufacturing everything from food to personal grooming products, Unilever’s business model is relatively defensive.
Indeed, despite the economic pain caused by the pandemic over the past 12 months, the company’s sales have only increased. I think this growth is a testament to the group’s passive income qualities, and that’s why I’d buy the firm as a long-term FTSE 100 passive income holding.
Passive income for life
If one is looking for passive income shares, I reckon one of the best sections of the market to consider is the utility sector.
Utility companies, such as SSE (LSE: SSE), have long been considered great income investments. The utility market is highly regulated, and cash flows are relatively stable. This means these businesses can pay out a large percentage of earnings to investors. Assets also tend to have long lifetimes. Therefore these firms don’t need to invest as much as other companies in other sectors to remain competitive and profitable.
As such, I think it could be worth considering SSE for a passive income portfolio of FTSE 100 shares. Shares in the organisation currently support a dividend yield of around 5%, and this income is backed up by cash generated from the company’s utility assets.
SSE is also investing heavily in renewable energy. I think this is incredibly important because by doing so, SSE is future-proofing its operations. Renewable energy is the future, and utility companies like SSE can’t afford to ignore this trend.
To that end, the business is in the process of constructing one of the world’s largest wind farms in the North Sea with joint venture partner Equinor. This investment in growth, coupled with the group’s existing operations should, in my opinion, support the stock’s dividend to investors for many years to come. That’s why I’d buy this FTSE 100 utility for a passive income in 2021.
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Rupert Hargreaves owns shares in Unilever. The Motley Fool UK has recommended Unilever. 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.