I believe buying UK shares is one of the most straightforward strategies to generate a passive income.
With that in mind, here are five investments I would buy for my portfolio today with this goal in mind.
Passive income investments
The first company on my list is pharmaceutical giant GlaxoSmithKline. At the time of writing, this stock yields 6%. As healthcare is a defensive and growing industry, I think this dividend is sustainable, which is why I would buy it as a foundation holding in my passive income portfolio.
Of course, like all income investments, if Glaxo suffers a sudden drop in income, the company may have to cut the distribution. This is a risk that comes with all dividend stocks.
The second stock I would buy for a passive income is British American Tobacco. Ethical considerations aside, this company has a solid track record of dividend growth. The shares currently support a dividend yield of 8%, and the stock is trading at a forward P/E of 8.1. Despite these attractive qualities, I’m well aware tobacco sales are in terminal decline. This is the biggest challenge the group currently faces.
Asset manager Rathbone Brothers should benefit from the UK’s ageing population and increased savings pot over the next few years, in my opinion. These tailwinds should drive customers towards the business, leading to increased profit growth and larger profit margins. More significant margins will support the company’s dividend yield of 4.3%.
That being said, regulatory headwinds and higher costs could impact other margins, limiting the company’s ability to return cash to investors. That’s something I plan to keep an eye on going forward. Nevertheless, despite these risks, I would buy the business for my portfolio.
HICL Infrastructure owns a portfolio of infrastructure assets across the UK. Infrastructure assets can be the perfect income investments because they can generate a steady income stream for decades. The stock currently supports a dividend yield of 4.8%, and the company has a track record of above-inflation dividend growth.
However, the company uses a lot of debt to fund its assets. Therefore, a primary risk of investing in this business is the potential for interest rate increases, making it harder for the organisation to sustain its debt. In the worst-case scenario, HICL could have to eliminate its dividend to meet creditor obligations. Even after taking this risk into account, I would still buy the stock.
Hedge fund income
The final company I’d buy is Man Group. With a projected dividend yield of 4.6%, this publicly traded hedge fund is a dividend darling. It can also generate profits in any market environment with its computerised trading strategies. The biggest challenge facing the group is maintaining customer loyalty in the viciously competitive hedge fund sector. If its performance is not maintained, customers could move elsewhere, putting profits and the dividend under pressure.
We think that when a company’s CEO owns 12.1% of its stock, that’s usually a very good sign.
But with this opportunity it could get even better.
Still only 55 years old, he sees the chance for a new “Uber-style” technology.
And this is not a tiny tech startup full of empty promises.
This extraordinary company is already one of the largest in its industry.
Last year, revenues hit a whopping £1.132 billion.
The board recently announced a 10% dividend hike.
And it has been a superb Motley Fool income pick for 9 years running!
But even so, we believe there could still be huge upside ahead.
Clearly, this company’s founder and CEO agrees.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Rathbone Brothers. 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.