One way of getting a stream of enduring passive income is via stock dividends.
Behind every stock is a business, and some are better at supporting dividends than others.
My preference is for enterprises with defensive characteristics rather than cyclical outfits. So I’m not too keen on companies that are vulnerable to the ups and downs of the economy.
However, I’m optimistic about the general economic outlook for the coming years, so I’ve considered some cyclically sensitive firms with strong dividend records.
Confident of long-term profitable growth
For example, financial services provider Legal & General (LSE: LGEN) has a cracking multi-year dividend record.
However, the financial sector’s sensitive to the strength of the general economy, so that’s a risk for investors. Nevertheless, with the share price in the ballpark of 241p, the forward-looking yield for 2025’s around 9%.
There’s some risk the dividend may be trimmed in the future if we see a general economic slow-down. One rule of thumb is that dividends yielding above 7% may be unsustainable.
Nevertheless, in March with full-year results report, the outlook statement was upbeat. The directors are “confident” the company will deliver long-term profitable growth.
The firm’s dividend-paying capacity is underpinned by robust earnings and a strong balance sheet, they said. Meanwhile, City analysts predict further single-digit percentage increases in the shareholder payment ahead.
The company has a net cash position rather than net debt. That’s good, and I’d like to see it build on its cash reserves while trading’s going well — normalised earnings look set to increase by about 18% for the trading year to May 2025.
Overall, Legal & General looks like it’s in decent shape. But I like others in the finance sector too, such as online trading platform provider IGG. The firm’s dividend record’s clean with no cuts, at least as far back as 2018.
With the share price near 770p, analysts predict the dividend will grow next trading year to yield around 6%. Meanwhile, this is another with net cash on the balance sheet.
A cash-cow for now
I also like wealth management business Hargreaves Lansdown. Investors have been worried the business may deteriorate in the future as competition eats into its market share.
However, right now, the business is a cash-cow with a fantastic dividend record. Analysts have pencilled in further rises ahead for this year and next. With the share price near 812p, next year’s yield is just below 6%.
Finally, one evergreen defensive business I can’t overlook is energy company National Grid. The firm’s regulated businesses on both sides of the Atlantic have enabled a decent multi-year dividend record.
There’s a lot of debt on the balance sheet though, and there’s ongoing regulatory risk. It may be difficult for the company to keep up the current level of dividends in the future. That could happen, for example, if even more investment in the operational infrastructure’s required.
Nevertheless, with the share price near 1,074p, the forward-looking yield for the current trading year is well above 5%.
Positive investment outcomes aren’t guaranteed with these four or any other companies. Nevertheless, I see them as decent candidates for further research now with a view to holding for passive dividend income.
