I am always looking for new investment opportunities that will help me to further diversify my long-term investment portfolio. However, as the new year approaches, I am keen to find unique holdings that will provide passive income in 2023. Finding a good quality company that can provide a stable dividend, year after year, is essential to achieving this goal.
My approach
A high-quality company has steady earnings growth, can generate significant free cash flow, and has low debt levels. I like to find companies that combine these strong characteristics with a high dividend yield that has been paid consistently for several years. If this yield has steadily grown over time, this gives me more confidence in the long-term potential of the company.
This is a fairly simplistic approach to finding income-generating opportunities within the FTSE 350. However, often the least complex methods yield the best results. Simply leaving these new investments to produce a consistent dividend, which will compound over time, can boost returns within my portfolio.
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30-year dividend history
The first share on my list is Man Group (LSE: EMG), an investment management firm. This company appeared on my dividend filter due to its current dividend yield of 4.9%. This yield is forecast to hit 6% next year. I am encouraged by the stability of this dividend, which has been paid consistently for almost 30 years.
The company had a very impressive 2021, rising almost 65%. After a solid start to 2022, it appears to have lost momentum, and is down 2.7%. However, the share price is still almost 45% above pre-pandemic levels and has a price-to-earnings (P/E) ratio of just 6.5.
Dividend potential
In addition, Man currently has a dividend cover of 2.6, which is forecast to reach 3.0 in 2023. This indicates that the current yield can be comfortably covered by earnings per share (EPS) and further strengthens the dividend. The underlying fundamentals are also very strong, with significant profit margins, reasonable cash generation, and high levels of earnings efficiency.
However, it is important to note that the dividend has only grown in the last year and has fallen significantly from levels paid in precious years. This indicates that dividend growth is potentially vulnerable, especially as forecast turnover and EPS are below the three-year average. EPS is forecast to grow by 16.7% in 2023. This is reasonable but considerably below the three-year average of over 42%.
Nonetheless, I think Man Group presents an excellent opportunity for me to access a reasonably high dividend yield in a company with solid fundamentals. For this reason, I am keen to add the company to my portfolio in 2023 for stable passive income.
