I’m hoping to retire early. To maximise my chances of success, I’m investing now to build a reliable passive income portfolio. My plan is to use this to replace some of my earnings when I start moving towards retirement.
The investing strategy I’ve chosen to meet this goal is to build a portfolio of good quality dividend stocks, with attractive yields and long-term growth potential. My hope is that shares will provide a reliable dividend income that rises ahead of inflation.
In this piece, I’d like to discuss three FTSE 350 stocks that tick the boxes for me and might find a place in my portfolio, if I had cash to invest today.
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A rising 8.8% yield
My first choice is already one of the larger positions in my personal portfolio. FTSE 100 financial services giant Legal & General Group (LSE: LGEN) provides retirement and life insurance services and has more than £1trn of assets under management.
Legal & General has been in business since 1836 and has a strong record of cash generation and dividend growth. The current shareholder payout of 20.3p per share has grown from 1.9p in 1994.
Dividends have only been cut once in the last 30 years, during the 2008/9 financial crisis.
Of course, there are no guarantees this record can be maintained. Legal & General is a complex business that’s hard for outside investors to analyse. Even so, the group’s large scale and long track record mean I’m quite comfortable putting my cash into L&G shares. I expect this to remain one of my larger holdings.
Much-loved brands
FTSE 250 soft drinks group Britvic (LSE: BVIC) is best known for brands such as Robinsons, Tango and Rockstar. What investors may not realise is that Britvic’s also the exclusive bottler and distributor for PepsiCo brands in the UK.
In addition to this, the company also has a faster-growing international business in Brazil, which is potentially a larger market than the UK.
One concern for me is that Britvic has slightly more debt than I’d really like to see. But the company’s defensive products are affordable treats that tend to generate very stable sales. So I don’t think debt’s a big risk here.
Shareholders have been rewarded by steady dividend growth since Britvic’s flotation in 2005. The stock’s current 3.9% yield looks fairly safe to me. I expect the dividend to continue rising over the coming years.
Powering the future
UK utility group National Grid (LSE: NG) is investing heavily to build out its electricity infrastructure to meet growing demand. Electric vehicles and the expansion of renewables are among the trends placing new pressures on the grid.
To make the most of this growth opportunity, the company’s now largely exited its slower-growing UK gas business. This has freed up capital and allows management to focus on its electricity operations.
Much of National Grid’s income is governed by the national regulator, so its returns should be fairly predictable. Of course, there will always be some uncertainty and risk, especially as UK utilities rely heavily on debt funding.
Even so, I expect National Grid’s 27-year record of dividend payments to remain safe for the foreseeable future. Broker forecasts suggest a yield of 5.7% for the year ended 31 March.
