For me, the best way to get passive income is by investing in the shares of stable businesses when they’re paying generous dividends.
There’s a peculiar phenomenon going on right now. The general economic storm clouds appear to be parting. Prospects ahead look brighter for many businesses than they have for a long time. Yet the London stock market continues to languish.
While the US market’s been shooting up on the improving economic news, the reserved British are seemingly turning their backs on share ownership. At least, that’s how it feels to me.
Should you invest £1,000 in BAE Systems right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?
Is the London market undervalued?
It’s no secret the London stock market looks cheaper in valuation terms than several others around the world right now. But how long can this sorry state of affairs continue?
Already, under-valued UK businesses are being gobbled up by other enterprises both national and international. If private investors and investment institutions can’t see the attractions, others can!
Perhaps we’re seeing a once-in-a-decade chance to get rich by targeting passive income from UK shares. Well, I’m not hanging around to wait for the facts to be proven by share prices rocketing higher. My aim is to research and buy promising dividend income stocks right now!
For example, in the FTSE 100 index, retail stocks look like good value. I’m thinking of names such as J Sainsbury, Kingfisher and B&M European Value Retail (LSE: BME). As I type (12 March), those three have forward-looking dividend yields of 5.5%, 5.2% and 4.2% respectively.
Of course, share prices change, and those levels of yield will vary over time. But that’s all the more reason for me to get stuck into researching these stock opportunities with a view to buying and holding some of the shares.
The B&M value retailing business, for example, has been bouncing back after a period of softer trading. Earnings retreated about 18% in the trading year to March 2023. But for the current year to the end of March, City analysts expect an almost 8% recovery, followed by a similar improvement next year.
Bigger dividends ahead
But the exciting prediction is what’s expected from the dividend — growth of almost 41% this year and 15% next year. If the company keeps pushing up the shareholder payment to reflect its trading growth, B&M shares could shape up to become a worthwhile passive income investment.
The full-year results report is due on the 5 June and I’m keen to see it. Meanwhile, the company released an upbeat statement on 9 January, confirming that trading had been going well.
The firm describes itself as an everyday low-price discounter with a “laser-focus” in keeping excellence in retail standards and the lowest costs. Perhaps that statement underlines the strength and the weakness of the business at the same time.
One of the biggest risks for shareholders, as I see it, is that competition may eat into B&M’s market share. The recent collapse of the Wilko value chain underlines what can go wrong if a business in retail loses direction, or if it becomes less popular with consumers.
Nevertheless, on balance, B&M is trading well right now and the dividend’s growing. I see the company as well worth the research time of investors who are seeking a passive income stream – like me!
