The period between Christmas and New Year usually provides more time for thinking and planning about the coming year. I’m definitely using some of this time to think about passive income ideas within my stock portfolio. With talk about interest rate cuts, I want to make sure my money is working as hard as possible.
Here are some ideas I’m thinking about.
Using full-year results to my advantage
A good portion of companies report the full-year results for the past year in Q1. Typically, the release of the report sees a dividend declared, based on the profits from the previous year. A short time later, the stock goes ex-dividend, meaning I need to own the stock before that date to be eligible to receive the money. Finally, the payment date of the dividend occurs later on.
This means I can start the year with a bang by identifying companies I believe should report solid profits. In doing so, I’d expect a generous dividend to be paid. This is especially true if the firm in question has a good track record of paying out income.
As an example, NatWest Group should report results in early February. Given the rising net interest income enjoyed throughout 2023 due to high interest rates, I’d expect the bank to deliver a large dividend. The current dividend yield for the firm is 7.08%.
Getting ahead of the curve
Another way to get 2024 off to a strong start is buying dividend shares that have potential to outperform later in the year. If I can find stocks I think are currently flying under the radar, it could put me in a strong position for the rest of the year.
For example, IG Group currently has a dividend yield of 6.07%. The business has grown revenue for each of the past five years. Yet the reporting period finishes at the end of May.
I could wait until later in the year before buying the stock for income. But this could mean I miss out on locking in the share price at a good level right now. The stock is down 5% over the past year and I feel this doesn’t reflect how well the business could do going forward. So my strategy would be to buy it shortly, aiming for share price appreciation followed by a healthy dividend payment when the full-year results come out.
Ensuring things go to plan
One risk to my idea is that the income payments are based on performance in 2023. So even though this might serve me well for dividends over the coming half-year, focus will then turn to 2024.
If the stocks I buy underperform, then future dividends might be cut. Of course, no one can predict the future. But it’s worth noting that I don’t want to invest in a company that seems to have benefitted from an outlier good year. If this performance can’t be replicated, I could be left disappointed further down the line.
To help ensure this doesn’t materially impact me, I want to diversify my passive income stocks.
