Getting paid for doing nothing beyond owning a company’s shares is, in my view, the greatest kind of passive income. This only gets better if I buy my stake at a bargain price. This way, I might get a nice bit of profit on top of those tasty dividends if and when sentiment improves.
Here are three tried and tested UK shares I’d have no issue buying today, assuming I can find some cash down the back of the sofa.
Market-beating yield
Consumer goods behemoth Unilever (LSE: ULVR) is a great example of a company that looks to be (temporarily) out of favour. A cost-of-living crisis has pushed at least some consumers to switch from well-known brands to cheaper alternatives, hindering sales growth.
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But it’s exactly these short-term headwinds that I’m looking for.
Right now, Unilever shares change hands for 16 times expected earnings. That doesn’t look screamingly cheap at face value. However, it’s lower than the valuation over the last five years. That’s the important bit for me. One should never compare apples with oranges, or Unilever with, say, a banking or oil stock.
With the economic climate still uncertain, it could be a while before the market warms to this company again.
Still, there’s a market-beating 4.1% yield in the offing as things stand. That’s more than enough to keep me patient until (I’m assuming) habitual spending patterns return.
Still great value
Spreading my money around the market is important to mitigate risk. So, I’d also be interested in acquiring stock in pharmaceuticals giant GSK (LSE: GSK).
This might sound like a strange choice considering that demand for healthcare tends to be resilient in good times and bad. Supporting this, the shares have climbed 7% in the last year.
Where’s the upside?
Well, one reason why I find GSK attractive is that it still trades on less than 10 times earnings. Again, that’s a lot lower than its five-year average valuation (15). Although developing new vaccines remains a risky and expensive endeavour, I can see this correcting when signs of a new bull market are evident.
At 4% for 2024, the yield is similar to over at Unilever and higher than I’d get from a FTSE 100 tracker fund.
Golden opportunity
A final UK share that I’d back is premium spirits seller Diageo (LSE: DGE).
Down 25% in value in the last year, this is another company that can’t seem to catch a break. Again, a lot of this can be blamed on people being more careful with their cash.
On a positive note, this offers what I believe to be a great opportunity for long-term investors. Like the other stocks mentioned, Diageo’s shares trade at a (significant) discount to their five-year average valuation.
Unless the world suddenly turns teetotal, I’m convinced there’s the potential for a nice capital gain brewing here. That said, it’s worth noting that younger adults are generally drinking less these days.
The yield — at 2.8% — isn’t massive but it should be easily covered by earnings. And I’d much rather get some passive income while I wait than none at all.
Experience tells me that there’s a strong chance of receiving nothing (or a lot less than hoped) if a yield looks too good to be true.
