How can we find the best UK stocks to buy for long-term passive income? Going for ones with good dividend track records is one way. And it can be even better if investors are avoiding them like the plague, and they’re cheap now.
Bank stocks seem to fit that bill in late 2023. They’re some of my top long-term buys anyway, and I’ll keep buying them
Contrarian
At times like this, I think of a quote from one of my top investors of all time.
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Sir John Templeton once said: “It takes patience, discipline and courage to follow the contrarian route to investment success. To buy when others are despondently selling, to sell when others are avidly buying.”
He made an awful lot of money doing exactly that.
And if he saw a stock like Barclays on a price-to-earnings (P/E) ratio under five, I think he’d be filling his boots.
Santander
But I’m not looking at Barclays, the cheapest UK bank on that score today. It’s Banco Santander (LSE: BNC).
Santander isn’t on quite so low a P/E, but at 5.8, it’s still way down. There’s a dividend yield of 4.4% on the cards for this year, but broker forecasts have it above 6% by 2024.
For today, I’ll stick with the 5.3% down for 2024, seeing as we’re so close to the end of this year.
Past dividend darling
Banco Santander was once one of the top picks for long-term dividend investors. It used to pay out more than it does today.
And it had a scrip scheme, so we could take more shares instead of cash.
But it pushed it a bit too far, and created too much stock dilution. The current boss, Ana Botín, took the bank back to a more standard policy.
I think that makes it more sustainable now, and better for long-term passive income investors.
What if?
So what might a 5.3% dividend yield get me in the decades ahead?
To get my £1,000 a month passive income, I’d need a pot of around £226,000. That’s 77,000 shares at today’s price. I can’t cough up that much right now, for sure.
So long-term compounding it would have to be. What if I could put half a Stocks and Shares ISA allowance each year into Santander? That’s £10k per year, and I could reach my goal in 15 years.
Down to earth
In reality, if the dividend rises as expected, I expect the shares to gain too. Bigger dividends are good, but a higher share price would mean fewer new shares for the same cash each year.
I do think bank stocks could face a few more tough years yet. And I’ll only believe those future dividends when I see them.
So this is not a prediction. It’s just a ‘what if?’ that assumes everything stays the same.
But it inspires me to put as much as I can each year into my Stocks and Shares ISA. And, right now, banks are my top choice when I have cash to spare.
