There’s a common theme running through the recent results of FTSE 100 companies I’ve seen. They are all either bringing back, maintaining or increasing their dividends. Great as this sounds, I think it’s important to be discerning about income investments. For instance, a high dividend yield can sound appealing, but if it isn’t backed by a consistent dividend policy, it may not be reliable.
To pick out the best options for my portfolio, I combed through all the dividend-paying FTSE 100 stocks to discern the best shares to buy to earn a reliable passive income right now.
Here are 10 of them, divided into three categories:
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
#1. Utilities are among the best UK shares today
Utilities like United Utilities, Severn Trent, and National Grid are appealing to me for five reasons. One, even during bad times, demand for their products and services doesn’t crash into nothingness. Two, their financial health is relatively strong. Three, their dividends are largely stable. Four, their dividend yields are between 4% and 6%, which isn’t bad considering the present circumstances. And five, their share price trend is upward, too, making them growth stocks.
The stocks aren’t risk-free, though. Individual challenges like NG’s potential break-up exist. And possible future changes like nationalisation could change the game for investors if that ever becomes a reality.
#2. Grocers and healthcare providers
The dividend yields aren’t as high as with utilities, but FTSE 100 consumer goods manufacturers like Unilever and Diageo, as well as healthcare companies like AstraZeneca, stand out because of the consistency in their payments. Like utilities, these too are growth stocks so there’s much for the investor to gain from them.
The big risk to investing in such defensives isn’t so much what I as an investor might lose, but what I won’t gain. I might be better off if I invest in a stock that has higher risk, but also higher dividends and the potential for more growth. Though, in that case, my risk threshold would also have to be higher.
#3. Old economy stocks
Oil and tobacco companies may not be the most popular UK shares to buy today, but there’s no denying that they have a long history of paying dividends. Royal Dutch Shell, for instance, cut dividends for the first time since World War II last year. But it has quickly gone back to increasing them again. BP, the other big oil stock, reliably pays dividends.
Similarly, tobacco stocks like British American Tobacco and Imperial Brands have also been resilient in paying their dividends. In fact, the 7% plus yields of tobacco stocks are among the highest around.
The big catch here is that neither of these segments has a predictably positive future for now. They are shifting gears to be more health- and environment-conscious, but how far they succeed remains to be seen. This shows up in their weak share price trends.
