Boring but brilliant

International distribution and services specialist Bunzl (LSE: BNZL) is one candidate to consider. The items it handles — think food packaging and cleaning supplies — won’t set the pulse racing. But it’s partly because these things are essential that management has been able to keep raising the dividend year after year.

That said, existing investors will be wanting to forget 2025. Weaker demand in its biggest market (North America) pushed many to the exits. By the end of December, the share price had fallen by 40% or so.

But if there’s one good thing to come from all this, it’s that Bunzl shares are currently cheaper than usual. A price-to-earnings (P/E) ratio of 13 is significantly below the firm’s five-year average P/E of 19. And those dividends? Unless trading falls through the floor, the 3.4% income looks safe for now.

This stock probably won’t recover in value quickly, especially if cost inflation keeps shrinking margins.

However, as a more-reliable-than-most source of passive income, I think it takes some beating.

Steady income

Getting exposure to a utility stock or two is also worth pondering. Yes, we know that cash distributions by any company can never be guaranteed. But the beauty of firms in this part of the market is that their business models are stable and earnings are relatively predictable.

This is why my second pick is water firm United Utilities (LSE: UU).

Like Bunzl, United has been raising its dividend for multiple years. We’re not talking explosive growth — an average of 4% every year, in line with inflation. But I reckon most income investors would prefer consistency over the former.

Right now, the forecast dividend yield for FY27 stands at 4.1%. That’s solid if not exactly flashy. It’s also more than someone would get from owning a FTSE 100 tracker. In direct contrast to Bunzl, United’s share price has also been rising very nicely in recent times (+24% in the last year).

Risks here include the tight leash of the regulator and high debt due to huge capital expenditure requirements. But these are par for the course in this space.

FTSE dividend growth star

A final example of a company with a great track record for raising dividends is wealth manager Rathbones (LSE: RAT).

Supported by high margins and the fairly recent merger with the UK arm of Investec, the growth rate here averages out at around 6%–7% per year. What’s more, analyst projections have it yielding 5.1% this year.

However, Rathbones isn’t a nailed-on winner. A market crash could see clients pulling their money out, leading to a reduction in fees and eventual profit. That could slow future dividend growth and might even lead to a cut. Even in good times, the £2.3bn cap operates in a competitive industry.

But that is precisely why I’ve made sure that all three mentioned here work in different sectors. In theory, spreading money around the market in this way makes it less likely that the income stream will ever dry up completely.

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With this in mind, here are a few suggestions for shares to ponder buying.

Passive income powerhouses

I’ll start with a trio of potential core holdings.

Regardless of how the UK economy is faring, we all need access to gas and electricity. I think this makes power provider National Grid a great option. Although changes in regulation could impact profitability, it currently boasts a dividend yield of 3.9%.

Another stock to consider is supermarket titan Tesco. Again, it provides things we regularly need, even if it isn’t the only option available to shoppers. But customer loyalty and sheer financial firepower has allowed Tesco to remain the market leader by some margin for some time. This all helps to support a yield of 3.2%

Pharmaceutical giant GSK is a third candidate for a portfolio focused on generating passive income. Getting new drugs approved is, of course, difficult and costly. Even so, populations around the world are ageing. This should provide a boost for the medicine and vaccines specialist’s earnings going forward. GSK shares yield 3.6%.

Sure, this is all pretty boring stuff so far. Where are the glitzy AI-related stocks?

Well, remember that we’re looking for FTSE stocks that generate stable levels of free cash flow that can then be distributed to shareholders. In this sense, ‘boring’ is exactly what investors should be looking for, even though dividends from any company can never be guaranteed.

6% dividend yield!

For added portfolio diversification, I reckon it’s worth considering stocks from outside the top tier, especially those that tend to dish out more cash every (or nearly every) year.

One such example is FTSE 250-listed wealth manager Rathbones Group (LSE: RAT). The £2bn cap is another business that is set to benefit from an ageing population as more people look for personalised financial advice from trusted names. The relationship that’s built also means that clients are more likely to stick around than go elsewhere.

Analysts currently have the stock yielding 6% in the next financial year. The average in the mid-cap index is around 3.6%!

Of course, Rathbones income from fees could suffer if stock markets crash. The emergence of new, lower-cost platforms is another challenge.

A final FTSE stock to consider

Another dividend-hiker that regularly flashes up on my screen is self-storage provider Safestore (LSE: SAFE). Yielding 4.5% as I type (18 November), the firm benefits from the beautifully simple business model that is charging people to temporarily house their possessions and clutter. Not depending on any single, large tenant also makes cash flow more resilient to setbacks.

Again, there are risks to consider. Safestore isn’t short of competition and may be forced to lower prices as a result. As an owner of real estate, the company is also exposed to higher borrowing costs.

However, this remains a relatively fragmented industry. That leads me to think the larger players will continue to benefit from brand power and acquisition opportunities.

Management’s goal to continue expanding internationally is another reason to think that earnings will keep moving in the right direction.

The post 5 dividend-paying FTSE stocks to consider buying for a retirement portfolio appeared first on The Motley Fool UK.

But I can see at least two mid-caps currently offering index-beating yields that deserve a bit more attention than they get and are worth considering.

On the up

MONY Group (LSE: MONY) is, admittedly, a biased pick. I’ve held shares in the price comparison platform provider for a few years and collected a lot of dividends in the process.

Fortunately for me (and any prospective investor), this looks set to continue. At its Annual General Meeting in May, the company said that it had delivered a “modest increase in revenue” since the start of 2025 relative to an “exceptionally strong comparative period in 2024“. Home Services was the standout performer thanks to more promotional deals being offered by energy suppliers.

With full-year guidance maintained, investors seem pretty happy. Indeed, the share price is up 17% or so in the last six months. And yet the valuation remains undemanding. We’re talking about a price-to-earnings (P/E) ratio of just over 12.

Chunky yield

But it’s the passive income stream that keeps me here. The forecast dividend yield stands at 5.9% — nearly double the average in the FTSE 250.

Naturally, this doesn’t come without risk. Some divisions — such as Travel — can be impacted by declines in discretionary spending. There’s also a sense that MONY will never knock it out of the park in terms of growth, partly due to operating in a very crowded market.

Still, margins and returns on capital remain high compared to most UK shares. There’s also little debt on the balance sheet.

Interim numbers are due on 21 July. If the shares dip in response, I’ll be disappointed. But in the absence of (very) bad news, another dividend payment should hit my account in September.

Dividend growth star

Another option that gets overlooked is wealth manager Rathbones (LSE: RAT). Perhaps this is due to it being in a space that isn’t known for offering a smooth ride in times of economic strife. Supporting this, the share price has been up and down like a yo-yo in the last five years.

On a more positive note, Rathbones has demonstrated the sort of reliability that most income seekers crave, namely year after year of hikes to the bi-annual payouts.

Analysts believe this will be the case again in 2025 with a total dividend of 99p per share. This would represent a 7% uplift on 2024 and equates to a tasty forecast dividend yield of 5.5%.

No sure thing

This is not to say that this or any future cash handout is ever guaranteed. The £2bn cap suffered a concerning 4.7% decline in funds under management in Q1 as clients (rightly) became nervous about the potential effect of Donald Trump’s planned ‘Liberation Day’ tariffs.

In response, Rathbones has sought to manage costs to mitigate any damage to its bottom line. This seems to have reassured investors for now with the stock easily outperforming the index.

Half-year numbers drop on 30 July but a P/E of 11 already offers what might be considered a good margin of safety.

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Naturally, there’s no exact answer as it depends largely on each individual’s interpretation of comfortable. Further to that, it depends on whether the investor is looking for regular income or simply enough savings to live off.

Realistically, an income-focused investor would need around half a million pounds to achieve a minimal dividend income. Based on an average 5% yield, that could return £25,000 a year — a sufficient amount to supplement a pension. This would also leave the £500k pot intact for emergency expenses.

One strategy to achieve this goal involves high-yield stocks and a dividend reinvestment plan.

Patience and consistency

For investors playing the long game, building a half-a-million-pound portfolio needn’t be a pipedream — it’s a matter of patience, consistency and compounding. The ISA provides the tax-free wrapper and a high-yield, dividend-growing portfolio does the hard work..

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Savvy investors may want to consider a stock like Rathbones Group (LSE: RAT). With a 5.5% yield, it’s enjoyed 15 years of consistent dividend growth at an average rate of 6.9% annually.

The wealth manager has been around since 1742 and holds over £100bn in funds under management, primarily serving high-net-worth individuals and charities. It’s not exactly a headline-grabbing stock, just a solid, reliable business.

The power of reinvestment

Let’s say an investor starts with a modest lump sum of £20,000 and reinvests all dividends. By contributing a moderate £5,000 a year inside an ISA, with Rathbones’ historical 5.5% yield and 6.9% annual dividend growth, they could hit the £500,000 mark in around 21 years. Increase the annual contributions or catch the stock undervalued, and that timeline shortens. At the same, it could lengthen if the stock goes through weak periods.

Here’s the kicker: compounding doesn’t just happen at the account level — it’s supercharged when the dividends themselves are rising. Each reinvested payout buys more shares, which in turn produce larger dividends. It’s a snowball effect: early gains look tiny but later years do the heavy lifting.

Risks? Always

No investment’s bulletproof, and Rathbones is no exception. Wealth managers are sensitive to market cycles, so a prolonged downturn in the market could dent its fee income. This year’s integration of Investec Wealth & Investment, following their recent merger, adds execution risk. And while dividend growth has been strong, there’s no guarantee it’ll continue indefinitely.

Also, financial services is a competitive sector. If lower-cost platforms eat into its client base, Rathbones may have to adjust its fee model, threatening overall returns. It’s always important to keep an eye on the underlying business — not just the dividend track record.

A realistic goal

A diversified portfolio of stocks like Rathbones, with an average 5% yield, could help build a long-term passive income machine inside a Stocks and Shares ISA. Stocks to look for should offer a mix of a decent yield, consistent dividend growth and business stability.

The key is to start early, reinvest, and be patient — eventually, that £500k could stop being a dream and start looking like a realistic goal.

The post Consider this strategy to target £25,000 in retirement income from a Stocks and Shares ISA appeared first on The Motley Fool UK.

Dealing with volatility

Man Group (LSE:EMG) stock has dropped by 20% over the past month, helping to push up the dividend yield to 7.91%. Over the past year, it has fallen by 34%. The London-based active investment management firm has struggled with the recent wild swings in the markets, which is the main reason for the short-term decline.

The firm makes money through charging fees on the assets under management. So if investors decide to pull their money out of the funds, Man Group ultimately makes less money. In a trading statement last week, the business said it expects to have lost around £4.2bn so far in April from people moving money out.

Even though this is concerning and a risk going forward, the business has a track record of success in fund management. Therefore, I believe that when the dust settles, people will calm down and look to reinvest in the market, which should help the share price rally back.

In terms of income, it has consistently paid a dividend for over two decades. It has been through challenging market conditions before and still paid out dividends, so I don’t see this time as being any different.

Still integrating

Another idea is Rathbones (LSE:RAT), which has a 6.21% yield. Interestingly, last month, it appointed former Man Group CFO Jonathan Sorrell as its chief executive designate.

The stock has taken a 13% hit in the past month, but is only down 5% in the last year. Part of the short-term fall has come from the integration friction with the Investec Wealth & Investment division. However, I see this as something that will pass. In the long run, it has the potential to make the business more efficient and also more profitable.

The 2024 results showed a sharp 72% jump in the profit before tax figure. The funds under management increased, although this factors in money from the Investec purchase, so I’m looking past this for now. Ultimately, the total dividend for the past year has been 93p. This marks an increase from the 87p last year and 83p the year before that. The trend of income payments is clearly higher and I don’t expect this to stop anytime soon.

One risk is that (like Man Group), Rathbones is sensitive to investors pulling money out. Although it’s too early to say, if volatility persists, the following quarterly results could show a fall in assets held, which could put some investors off.

I think both stocks represent a good buying opportunity for income investors to consider right now, given the drop in the past month has helped to push up the dividend yield.

The post 2 brilliant stocks currently on sale that can help to build a second income appeared first on The Motley Fool UK.

Any business that can do this shows the sort of reliability that many higher-yielding stocks lack, making the former an arguably less risky proposition.

With this in mind, I’ve picked out three examples from the FTSE 250 for Fools to ponder buying.

Uninterrupted growth

As a business, meat supplier Cranswick (LSE: CWK) isn’t remotely sexy. But it’s been a wonderful source of rising and uninterrupted dividends over the years. Even a global pandemic couldn’t stop management from returning more cash to shareholders.

A “record Christmas trading period” suggests this form shows no sign of ending. I also like how Cranswick’s vertically integrated business model gives it a significant amount of control over its supply chain.

So what are the downsides? Well, Cranswick shares yield just 2%. A valuation of 18 times forecast FY25 earnings, while not exactly frothy, could also come back to haunt new buyers. That’s if inflation bounces for longer than expected or there are any unexpected operational disruptions.

Still, I see no reason why it can’t continue to outperform its index over the long term. The shares are up almost 47% in five years compared to a near-6% rise in the FTSE 250. And that’s not including the income investors will have compounded over that period.

Profits (and dividends) jump

Wealth manager Rathbones (LSE: RAT) is another dividend-growth superstar. Out of interest, it announced some analyst-beating full-year numbers yesterday (26 February).

Underlying pre-tax profit hit £227.6m in 2024. That’s a rise of 79% compared to 2023 — no mean feat considering the multiple headwinds it faced last year, including a change of UK government and armed conflict in the Middle East.

A lot of this uplift is down to what appears to be a very successful integration of Investec Wealth and Investment (UK) with only 0.3% of the latter’s clients declining to move to Rathbones.

But it’s the 6.9% uplift to the final dividend that caught my eye, bringing the full payout to 93p per share. That gives a yield of 5.6% at the current share price.

Dividends can never be guaranteed, especially if they operate in a cyclical sectors such as finance. But Rathbones has shown itself to be more reliable than most of its peers.

Trading ahead

A final FTSE 250 stock to consider is shipping services provider Clarkson (LSE: CKN). The 2.5% forecast yield isn’t huge. However, at least some of this is down to the share price enjoying some great positive momentum. It’s up 14% in 2025 so far, significantly outperforming the index.

Much of this movement has come thanks to an encouraging, if exceptionally brief, recent update. Back on 10 January, the firm announced that full-year numbers for 2024 would now be “slightly ahead of current market expectations” with underlying pre-tax profit coming in at “not less than £115m“.

One key risk here would be an increase in global trade tensions. However, knowing that Clarkson managed to weather the storm during President Trump’s first term in the White House bodes well. In fact, it recently registered 21 years of consecutive dividend growth!

The post 3 reliable FTSE 250 shares to consider buying for rising passive income appeared first on The Motley Fool UK.

In my experience, many of those that tick both of these boxes tend to be pretty boring companies. And that’s just fine with me! Consistency is the goal here, not excitement.

Let’s look at a couple I’d consider buying if creating a second income was my primary goal.

Reliable payer

Bodycote‘s (LSE: BOY) one example of a business I’d back to keep raising its cash payouts going forward. Why? Because this FTSE 250-listed heat treatment and thermal processing services provider has build up an excellent record of doing just that over many years. There’s even been the odd special dividend along the way.

Of course, just because a company’s thrown money at its investors in the past doesn’t guarantee it will continue to do so, especially if trading takes a knock.

Bodycote’s no exception. It’s worth being aware that recent interim results for the first six months of 2024 mentioned “challenging” market conditions for its Automotive and General Industrial (AGI) division. As a result, the company’s needed to take “a number of decisive actions to balance costs and capacity with near-term demand“.

Don’t get greedy

On a more positive note, the firm made no change to its full-year outlook. This makes me think the 3.7% dividend yield looks safe. In fact, analysts suspect the payout will be covered over twice by expected profit.

Some may scoff at such an average yield when there are other companies offering nearly triple that. But I’d rather receive a lower but rising payout than never receive a higher one. What looks too good to be true often is.

5% yield

Fellow FTSE 250-listed wealth manager Rathbones (LSE: RAT) is another deadly dull dividend demon that’s been increasing the money it returns to investors for donkey’s years.

I find this impressive, not least because it operates in a sector where sentiment can quickly change depending on macro-economic headlines. A smidgen over 5%, the dividend yield’s also chunky and looks likely to be covered comfortably by profit.

One potential fly in the ointment is last year’s merger with Investec Wealth & Management. Although this seems to have gone well, it may take a bit more time to truly judge whether this move was truly in the interest of shareholders.

Cheap to buy

Still, it’s not like the valuation looks stretched. The shares currently change hands for a very reasonable 11 times expected FY24 earnings. That might even turn out to be a bargain in time if July’s interim results are anything to go by.

In a sign that risk appetite’s recovering, Rathbones reported a 3.4% rise in its funds under management and administration for the first six months of 2024.

If and when confidence returns en masse — perhaps after a succession of interest rate cuts both here and in the US — I wonder if I might see a nice positive gain on top of those dividend payments if I were to buy now.

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Even though it’s impossible to predict the future, I can make my life easier by targeting stocks where the dividend has been actively increasing in the past few years. Here are two I’m noting down.

A track record of investment advice

One is Rathbones Group (LSE:RAT). The wealth and investment manager might not be the largest financial institution in the UK, but its presence in the FTSE 250 shows it’s no small fry.

Over the past year, the share price is up a modest 6%, with a current dividend yield of 4.82%. Yet it’s the dividend growth over the past few years I’m really focused on. The dividend per share over the last year has totalled 88p. This is an increase from the 84p the year before and the 82p from the year before that.

Even during the rocky pandemic period over 2020 and 2021, the dividend per share continued to tick higher. I think the company’s able to do this thanks to its business model. The majority of revenue comes from fees made from selling investment products to individuals. Given the long-term nature of these products and the relationship management’s built over time, Rathbones benefits from having steady and reliable revenue.

As a result, it doesn’t surprise me revenue’s also increased for each of the past few years in line with the dividends. This means dividends aren’t under pressure and can be covered by earnings.

One risk is the recent merger with Investec Wealth & Investment. The two businesses might not gel that well and it could cause problems further down the line.

Dividends flowing like water

Another option I’m considering is Severn Trent (LSE:SVT). The current dividend yield’s 4.72%, with the share price up 1% over the past year.

Over the course of the past five years, the dividend per share’s risen from 100.08p to 116.84p. Each year within this period, it’s moved higher. Even thought profit before tax has fluctuated over the years, it’s always been profitable. With a current dividend cover of 1.4, this gives me confidence income payments can easily be covered by the earnings.

Looking forward, I think the stock can continue to do well due to its defensive nature. As one of the leading water companies in the UK, it provides an essential service to millions of businesses and individuals. Therefore, with the recent recession jitters in the market, I’d expect investors to rotate into stocks like Severn Trent and out of riskier growth stocks if sentiment starts to go south.

Even if consumers tighten their belts with spending in the coming year, people will clearly still pay their water bills. As a result, I expect the finances of the firm to stay strong.

A risk is the reputational damage and potential fines from the regulator when the investigation regarding wastewater spillages comes to a close.

Overall, I’m thinking about adding both stocks to my portfolio when I get more free cash.

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Filtering for the good stuff

In my eyes, one of the best filters I can apply is the track record. Just like I mentioned, I can’t say for certain if a dividend stock will keep on paying out income. But if the stock in particular has a proven history for over a decade or more of payments, it does make me feel confident. For example, if cash was paid out even during the pandemic, it stands to reason that the company can withstand problems.

Another way I’d invest is to filter for stocks with a decent dividend cover ratio. This measures how many times the dividend can be covered by the earnings. Ideally, this ratio should be well above 1. A ratio around 2 shows to me that the income is sustainable. If it’s below 1, then this shows that a dividend cut could be coming.

Finally, to bulletproof my income stream I’d make sure I had a portfolio of at least a dozen stocks. Sure, this can be built up over the course of several years. But the key factor is that the more companies I own, the less I’m going to be impacted if one has problems in the future.

One that I’d include

A good example that ticks the boxes is Rathbones Group (LSE:RAT). The UK wealth manager sits in the FTSE 250, with a current dividend yield of 5.45%.

It has a good track record, with 13 consecutive years of the dividend being either increased or held. As a mature company (founded in 1742), dividends are a key way that the business keeps shareholders happy.

I think the income will be sustainable going forward thanks to the solid business model it operates. The higher the funds under management and administration (FUMA), the higher the fees and commissions can be to generate revenue. The good news is that in the half-year report, FUMA had grown to £60.5bn from £58.9bn from 2022. If this keeps ticking higher, then revenue and profitability should be taken care of.

I do note the 24% fall in the share price over the past year. I think part of this is to do with the short-term pains associated with integrating Investec Wealth to Rathbones. Further, the Q4 update flagged up that “economic uncertainties are expected to persist in 2024”. This could provide volatile markets that could cause investors to pull out funds.

The dividend cover ratio for Rathbones is currently 2. This also gives me confidence that this stock is sturdy going forward. If I was starting from scratch to build an income portfolio, I’d consider buying it.

If I invested £500 a month in a dividend portfolio with an average yield of 5.45% for the next two decades, I could be set with a pot worth £218k. The following year, this could pay me out just under £1k on average each month.

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With £1,500, I could buy 95 Rathbones shares at £15.76 per share. The remaining £1,500 would buy me 537 Tesco shares at £2.79 per share.

Here’s why I like both stocks!

Contrasting share price performance

Rathbones provides a variety of wealth management and investment management services.

Tesco is one of the largest supermarket businesses in the UK with a global presence too.

Rathbones shares are down 23% over a 12-month period, from 2,050p at this time to current levels of 1,576p. Conversely, Tesco shares are up 12% over the same time period, from 249p at this time last year to current levels of 279p.

Pros and cons

Rathbones’ position as the largest discretionary wealth fund manager appeals to me. This position came about through the merger with Investec. Rathbones’ position, profile, track record and reputation help build my investment case. However, I do understand past performance is not a guarantee of the future.

Next, although Rathbones shares have dropped, I’m not concerned. In fact, I view it as an opportunity to buy cheaper shares. They currently trade on a price-to-earnings ratio of 10.

From a bearish view, macroeconomic volatility is probably what’s caused the shares to slide. Continued turbulence could hurt performance and returns as consumers may have less to spend on investments while they battle soaring energy food prices. Furthermore, debt levels are a bit higher than I’d like. Paying these down may take precedence over investor returns.

Moving to Tesco, the fact it has the largest market share of all the supermarket businesses is a plus point for me. It offers it a sense of defensive ability due to the essential nature of its offering. Furthermore, it has recently invested heavily in digital channels to keep up with the times and make the most of the changing habits of consumers and the e-commerce boom. Finally, its popular Club Card loyalty scheme has been a huge hit, and helped performance and market share grow.

Tesco shares look good value for money too, on a price-to-earnings ratio of just over seven.

From a risk perspective, rising costs due to inflation could hinder profit margins and returns. More importantly, supermarket disruptors Aldi and Lidl continue to chip away at Tesco’s dominant market share as consumers look to get more bang for their buck. These issues could hurt performance and returns.

Breaking down the numbers

Although dividends are never guaranteed, the current dividend yield on offer from both stocks is attractive. Rathbones offer a yield of 7.5% and Tesco 3.9%. Both yields are above the FTSE 100 average of 3.8%.

Rathbones shares worth £1,500 could earn me £112.50 in dividends. With Tesco shares, I could earn £58.50 from a £1,500 investment.

I don’t have £3K spare right now, but the above explains the maths, method, and investment case around how I could build a second income stream with just two stocks.

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