Dividend shares can be a lucrative stream of passive income. However, since these companies are typically more mature industry leaders, they can also be a terrific source of portfolio stability to help protect existing wealth.
For those already in or nearing retirement, these types of stocks could be the more prudent choice when building a defensive portfolio. And luckily for British investors, the FTSE 100 is home to a vast collection to choose from.
The biggest monopoly in Britain?
It’s no secret that demand for energy is on the rise. And while the headlines usually focus on the companies finding solutions to generate green electricity, little credit is given to National Grid (LSE:NG.). After being established in the 1930s, the company owns and operates the UK’s energy distribution infrastructure that connects households with electricity.
As such, the firm pretty much exists with next to no competition. And while management is regulated by Ofgem, which limits its pricing power, the company has proven to be one of the most reliable sources of dividends for decades. In fact, National Grid has hiked shareholder payouts for more than 24 consecutive years.
Of course, there are some negatives to consider. Artificial caps on its pricing, expensive maintenance of energy infrastructure, and the 2021 acquisition of Western Power Distribution have racked up quite an impressive £42.9bn pile of debt.
Management has begun addressing the group’s leverage, which could pose a significant problem if the Bank of England decides to resume interest rate hikes. However, with a long history of navigating periods of economic instability and electricity demand not likely to disappear anytime soon, National Grid may still be one of the most reliable income stocks in the UK. At least, that’s what I think.
Fancy a pint?
One of the biggest names in the alcohol industry is Diageo (LSE:DGE). The beverage business owns over 200 brands, including Johnnie Walker, Smirnoff, Baileys, and Guinness. Not all investors may morally agree with investing in a manufacturer and distributor of alcoholic drinks. But there’s no denying the group’s track record is quite impressive.
With long-term demand for Diageo’s brands remaining robust, the company has been able to generate chunky profits fairly consistently. As a result, dividends have been hiked for 36 years consecutive years. So, it’s no wonder that Warren Buffett snapped up a $41.3m stake in the business earlier this year.
Recently, the stock has taken a bit of a tumble as net sales growth has started to shrink. It seems even after hiking prices, the decline in sales volumes in markets like the United States is taking its toll on the business.
However, given the current economic environment, this isn’t exactly a surprise. And with performance being dragged down by external temporary factors rather than an internal fundamental problem, this may only be a temporary speed bump on yet another multi-decade streak of dividend hikes.
