As I look around for passive income stocks to buy, there remain plenty of great candidates in the FTSE 100.
Here are two I’ve currently got my eye on, especially as both go ex-dividend next month.
Passive income powerhouse
International distributor Bunzl (LSE: BNZL) is one of the most consistent stocks in the UK market when it comes to cash returns. We’re talking year after year of consecutive rises to the total dividend.
Much of this is down to it supplying the sort of things businesses always need. We’re talking food packaging, cleaning chemicals, and safety equipment.
Although we can’t automatically assume this form will continue, I’d be pretty surprised if it didn’t. After all, the £12bn market cap company kept increasing payouts during the pandemic!
In its last update (September), the firm raised its forecast on adjusted operating profit in 2024 thanks to the positive impact of acquisitions and demand for its own brand products. In response, analysts at J.P.Morgan upped their price target to just under 4,000p for the stock, citing the potential for growth in the North American market, particularly in grocery and food service sectors.
This all sounds positive to me.
Worth the risk?
On the downside, Bunzl’s dividend yield stands at 2.1%. A standard FTSE 100 tracker fund would deliver more.
We also know that brokers can sometimes be (wildly) off in their projections. That growth might not materialise, especially if the US slips into a recession.
Then again, Bunzl shares have massively outperformed the UK’s top tier over the long term — the only time horizon that matters to a Fool like me. Compounding that reasonable-but-not-massive yield every year would have boosted returns even more.
I’m going to think on this a while longer, especially as the valuation is currently looking pretty full. Fortunately, the stock doesn’t go ex-dividend until mid-November.
Dividend aristocrat
One way of raising the average yield across my portfolio would be to buy a slice of tobacco giant Imperial Brands (LSE: IMB). Like Bunzl, it’s been a veritable cash machine for investors over the years. The difference is that its dividend yield is far higher. As I type, this stands at 6.6%!
Now, cash distributions like this tend to come from businesses that aren’t registering much in the way of growth. Given that levels of tobacco use have been falling for decades now, this is arguably true in Imperial’s case.
Still, the company is doing what it can to adapt to changing tastes and behaviours. For example, Imperial now expects net revenue growth of 20%-30% for its next generation products (e.g., vapes) in FY24. This makes me suspect that this passive income stream looks pretty safe.
But for how long?
There are, however, a couple of things I’m pondering.
The new(ish) UK government doesn’t seem any less motivated to reduce smoking in the UK than the last one. Several proposals — such as prohibiting the sale of tobacco to anyone born after January 2009 — could become law in time. And there’s surely only so long that Imperial can keep raising prices to mitigate the decline in tobacco use around the world.
Like Bunzl, I’m going to run the rule again in a week or two. It goes ex-dividend on 28 November.
