No income stream is ever truly safe. However, some dividend stocks stand a better chance of consistently sending me money than others, based on their track records.
As luck would have it, a few of these are listed in the UK.
Diageo
Premium spirit maker Diageo (LSE: DGE) sells many of the most recognisable alcoholic brands in more than 180 countries around the world. Importantly, these are drinks that people will keep consuming, regardless of what’s going on in the economy.
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It’s this defensiveness that keeps the money rolling in, a proportion of which is routinely paid out to shareholders.
But ‘safe’ dividends aren’t necessarily ‘big’ dividends. Indeed, Diageo’s yield currently stands at just 2.3%. For perspective, the FTSE 100 index yields around 3.5%. Some companies offer ones in double figures.
However, we’re interested in consistency here, not size. As an indication of the former, Diageo has been regularly lifting its cash returns while also managing to raise its share price by over 46% during the last five years. As I type, the FTSE 100 is only up 11% since 2018!
All this keeps me thinking that Diageo would be a cornerstone investment if I were looking to build a portfolio focused on generating passive income.
Halma
FTSE 100 peer Halma (LSE: HLMA) is another dividend aristocrat. In fact, it almost puts Diageo to shame.
This group of life-saving technology providers has hiked its total payout by 5% or more every year… for the last 43 years.
I think a 44th year looks likely. After all, Halma has shown itself adept at implementing a ‘buy-and-build’ strategy by snapping up companies that will add to earnings and, consequently, dividends.
The bad news is Halma shares have long been expensive. Despite tumbling in value over the last year, the stock still changes hands at a price-to-earnings (P/E) ratio of 31.
The yield (0.9%) is also minute compared to what I could get elsewhere in the market. Even a bog-standard cash savings account now offers more.
For me, however, Halma is worth the risk for a combination of income and growth. I’d be buying this stock right now if I had the funds to do so.
BAE Systems
BAE Systems (LSE: BA) was the best-performing stock in the FTSE 100 last year, rising 55%. While the reasons for this are neither hard to fathom nor pleasant, holders should be rightly delighted.
To me, however, BAE has long appealed more as a stock to hold for income. Like Diageo and Halma, the defence giant has an enviable history of lifting its dividends every year.
It’s forecast to grow the payout by another 7% in 2023. That would leave it yielding 3.4%, based on today’s share price. Another thing worth mentioning is that BAE’s profits are expected to cover its dividends twice. This makes it very unlikely that there’s a cut on the horizon.
Clearly, some profit-taking could lie ahead if we get a merciful resolution to the Ukraine/Russia conflict. However, last year’s invasion has surely pushed nations around the world to consider upping their defence budgets.
So while I still wouldn’t prioritise buying this UK share for short-term capital gains, I think its income credentials are as strong as ever. I’d buy today if I had the funds.
