With spare cash to invest, I’d aim to concentrate a passive income stock portfolio into my five best ideas.
Wide diversification is useful though, because it can help protect capital from company-specific disasters and setbacks. So one of my investments would be a FTSE All-Share index tracker fund.
A good example is SPDR FTSE UK All Share UCITS ETF (LSE: FTAD). However, similar tracker funds are available, so research is necessary.
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By choosing the tracker, one fifth of the money in a portfolio will be allocated to a position backed by hundreds of underlying businesses.
Right now, the All-Share index has a median rolling dividend yield running at about 3.9% — great for passive income.
A very strong brand
Alongside the tracker, I’d choose Switzerland-based bottler of Coca-Cola products, Coca-Cola HBC.
For decades, the brand’s been robust and loved by many, and that strength shows up in the company’s robust multi-year trading and financial record.
With the share price near 2,382p, the forward-looking yield for 2025 is around 3.8%. That’s not the highest around, but the dividend’s been getting bigger each year with a compound annual growth rate (CAGR) running at just over 10%.
The company could potentially lose its exclusive rights to distribute Coca-Cola products at some point. However, that’s a risk I’d embrace given the strength of the business now.
The attractive energy sector
My third position would be National Grid (LSE: NG). The company operates regulated energy businesses on both sides of the Atlantic, including the UK’s electricity transmission grid.
There’s a lot of debt on the balance sheet because of the ongoing need to invest money into the energy infrastructure and operations. On top of that, the regulators keep a close eye on the sector. They have the power to enforce changes that could make it harder for the company to keep up its shareholder payments.
Nevertheless, National Grid has a long record of paying generous dividends and I’d embrace the risks and assume those payments will continue — although there are no guarantees.
With the share price near 1,032p, the forward-looking dividend yield is near 5.7% for the trading year to March 2025.
A whopping yield and a recovery play
Both Coca-Cola HBC and National Grid are defensive businesses and tend to enjoy steady cash flows whatever the general economy is doing. However, I’m optimistic about the outlook for general economic conditions. Therefore, I’d target Legal & General with its share price around 255p. The anticipated dividend yield is just over a juicy 8.8% for 2025.
One risk is the financial services provider is in a cyclically sensitive industry. However, there’s a decent multi-year growth record for the dividend, so I’d carry the risks and aim to hold the stock for the coming years.
Finally, I’d choose fast-moving consumer goods giant Unilever. The forward-looking yield is running at just over 4% for 2025. That’s not as high as some, but with the share price near 3,827p the valuation here is close to its recent lows.
Although there’s no certainty, I reckon the business has a decent chance of recovering its growth mojo in the coming years as economies hopefully continue to improve.
