When it comes to passive income investments, I want reliable long-term dividends. And that means shares in companies that I expect to achieve strong cash generation for decades to come.
Today I’m providing a snapshot of my favourite three, two of which I’ve already invested in. I’ll highlight the forecast dividend yields. And for each one, I’m suggesting a key reason to buy, and what I see as the main risk.
Bank
Lloyds Banking Group (LSE: LLOY) is a high street retail bank and the UK’s biggest mortgage lender. Lloyds shares are largely unmoved over the past 12 months, but they’re down around a third over five years.
Dividend Yield: 4.8%, and rising on forecasts.
Pro: The banking sector is key to the UK economy. And if the economy grows in the long term (which it has been doing for centuries now), Lloyds should rake in plenty of cash. Right now, judging by the stock’s current valuation, I think investors fail to see that. Instead, I see them too focused on short-term economic pressures.
Con: The property market looks set to falter. Rising interest rates are pushing mortgages beyond affordability for many first-time buyers. And that’s surely got to hurt Lloyds in the short term.
Verdict: Short-term pain, long-term gain.
Investment trust
City of London Investment Trust (LSE: CTY) aims for long-term growth in income and capital, by investing mainly in UK listed stocks. It provides long-term progressive income.
Dividend Yield: 5%, with strong long-term record.
Pro: The big argument in favour of buying City of London Investment Trust shares is its dividend record. As well as offering a good yield, the trust has raised its annual payment every year for the past 56 years. That puts it at the head of the Association of Investment Companies’ list of Dividend Heroes with at least 20 years of increases.
Con: With a dividend history like that also comes expectation. An investment trust can hold on to cash in stronger years to make up its dividend in weaker years. But if several poor years mean the dividend rises can’t be sustained, investors might flee.
Verdict: Heroic long-term dividend history.
Energy
National Grid (LSE: NG) operates electricity and gas distribution networks in the UK and parts of the US. Its share price has been volatile over five years, down modestly in the past 12 months.
Dividend yield: 5.3%, and progressive.
Pro: However power is generated, from hydrocarbons, nuclear, wind, or solar, it’s transmitted over the national grid, owned by, erm, National Grid. Whoever generates and sells the stuff, the company gets its cut. That brings high visibility of earnings, supporting dividend reliability.
Con: Moves away from using gas for energy could eventually make a part of the distribution network obsolete, though presumably with corresponding increases in electricity volumes.
Verdict: Reliable progressive dividends.
