The UK stock market remains my first choice for grabbing passive income in 2024. In fact, some shares from the FTSE 100 have shown themselves to be such reliable dividend payers that I could imagine holding them for decades.
Assuming I had the cash to invest, here are three I’d buy once all the Christmas turkey has been eaten and markets have reopened.
Short term pain
Spirits seller Diageo (LSE: DGE) has had a pretty terrible year. Slowing sales as a result of the cost-of-living crisis coupled with the tragic passing of its former CEO have pushed the share price down well over 20%.
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Will this put bi-annual payouts to shareholders at risk? I doubt it. Yes, it might be a while before business bounces back as consumers remain cautious. So, there’s always a chance that the stock may continue to be unpopular.
However, the total dividend is still expected to be covered twice by profit next year. This should make a cut unlikely. Importantly, Diageo also has an excellent track record when it comes to increasing the amount of passive income it distributes through good times and bad.
For balance, there’s some ‘concern’ that young people are consuming less alcohol these days. But unless we regard this as a catalyst for sales to fall dramatically across the globe (and I don’t, given that they appear to now prioritise quality over quantity), I reckon this poor run of form will correct. Should this happen, dividends will be complemented by nice capital growth.
Boring is beautiful
Second on my list of dividend-paying shares I’d be comfortable owning for decades would be international distribution and services firm Bunzl (LSE: BNZL).
This company rarely makes the headlines and understandably so. Trying to get excited about a business that delivers hygiene supplies, safety gloves, and disposable tableware is a big ask. But this dull-but-necessary attribute is exactly why it’s been a wonderfully consistent source of (rising) passive income for decades.
There are downsides here. The firm is very dependent on successful acquisitions and the yield is currently just over 2.1%. That’s lower than I’d get from a fund that merely tracks the return of the FTSE 100 index.
However, I’m confident that Bunzl’s quality will allow it to continue outpacing the market return over time and justify the extra risk involved.
Purple patch
A final blue-chip share I’d be comfortable owning for many years is defence giant BAE Systems (LSE: BA). For fairly obvious reasons, the stock has been on an absolute tear recently as governments have raised spending on products and services for air, land and naval forces to protect themselves from bad actors.
One near-term worry is that it’s starting to look rather expensive relative to sector peers. A price-to-earnings (P/E) ratio of nearly 16 for FY24 suggests good news is already in the price. We could see some profit-taking in 2024 if, mercifully, military conflicts in Ukraine and Gaza come to an end.
As long as I could see myself retaining the shares for many years, however, I’d have no such qualms. It’s a sad fact that armed conflict between humans is inevitable. Indeed, this has allowed — and should continue to allow — the company to keep raising its annual dividend year after year.
