Building a passive income portfolio from scratch can be a daunting process. But it doesn’t have to be. There are plenty of UK shares currently offering high-quality dividends that could provide a passive income for life.
Today, I’m going to take a look at 10 of my favourite income investments I’d buy for a starter portfolio right now.
UK shares for passive income
I think the financial sector is currently stuffed full of attractive income investments. These companies have seen their share prices fall over the past 12 months as investors have bolted from the sector. However, from a fundamental perspective, these businesses are as strong, if not stronger than they were in 2019.
On that basis, I’d buy stakes in Phoenix Group, Legal & General and Aviva for a passive income portfolio. These UK shares all offer dividend yields of around 6.7%.
The reason why I’m so attracted to these businesses is the fact that they all provide and manage pension products for customers. This means they have to have a long-term mindset. That suggests these dividends should be sustainable in theory because management has to think about the business’s position for the next few decades. They won’t be paying out more than the company can afford to attract new investors.
As such, I think these financial giants could be good holdings as a base of any passive income portfolio.
Other companies on my list include homebuilders Persimmon and Taylor Wimpey. Since the financial crisis, these companies have become dividend champions. According to the City, they both have the potential to support dividend yields of more than 8% next year. With profits expanding alongside cash-rich balance sheets, I reckon these companies could make great passive income investments for 2021 and beyond.
No passive income portfolio would be complete, in my opinion, without some exposure to the pharmaceutical sector. On that basis, I think an investor would benefit from adding GlaxoSmithKline to a portfolio of UK shares with an income focus. The pharmaceutical giant currently offers a dividend yield of around 5%.
I also think mining groups BHP and Rio Tinto warrant a closer look. These two businesses have moved away from growth to focus on income in recent years. And with commodity prices surging, I’m excited about their income potential. Both stocks currently support dividend yields of around 5%, but I think this underestimates their income potential in the current commodity price environment.
Another possible stock acquisition is steel producer Evraz. Due to the nature of the steel business, this company’s earnings can be volatile, so it might not be suitable for all investors. However, I’d buy it because it tends to return a lot of cash to shareholders. That offsets the firm’s volatility in my view. At the time of writing, the stock offers a yield of 7%.
British American Tobacco is my final pick for a passive income starter portfolio. This FTSE 100 is an income champion with a dividend yield of 8% at the time of writing and a long track record of increasing its payout to investors every year.
Rupert Hargreaves owns shares in British American Tobacco. The Motley Fool UK has recommended GlaxoSmithKline. 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.