Stock market rally: 2 UK dividend shares I’d buy now to make a passive income

I think these two UK dividend shares could offer a relatively generous passive income over the coming years.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hand holding pound notes

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While many UK dividend shares have risen in price in the stock market rally, it’s still possible to obtain relatively attractive yields from across the FTSE 100.

Certainly, the stock market faces a period of greater uncertainty at the present time. However, this risk may be offset to some extent by the potential rewards that are available from dividend stocks compared to some other mainstream income-producing assets such as bonds.

With that in mind, here are two UK stocks that could offer a worthwhile passive income over the coming years.

A high-yielding stock among UK dividend shares

With a yield of 6.4%, Vodafone (LSE: VOD) is one of the highest-yielding companies among UK dividend shares at the present time. This is despite the company reducing its dividend in the last few years in order to improve its financial situation and aid its growth prospects.

Recent company updates have shown a relatively resilient performance from the telecoms company. Its plans to improve customer loyalty and implement digital growth opportunities seem to be working well. They could catalyse its financial performance and increase dividends.

Clearly, Vodafone faces tough operating conditions alongside many UK dividend shares that may harm its dividend prospects. Similarly, a weak economic outlook could mean it has heightened risks at the present time. However, its high yield and what appears to be a sound strategy could lead to a generous passive income in the long run.

Dividend growth potential over the long run

Unilever (LSE: ULVR) has a relatively low yield compared to other UK dividend shares at the present time. The FTSE 100 consumer goods stock has a dividend yield of 3.5%, which is covered 1.5 times by net profit. This suggests it’s relatively sustainable at its current level, And that could be beneficial, given the uncertain outlook currently facing the world economy.

Of course, Unilever faces tough operating conditions. Sales have underperformed previous expectations in its latest updates. That’s due to lockdown measures reducing its scope for sales growth in many sectors and regions. These challenges could remain in place for many months.

However, Unilever has a long track record of profit and dividend growth, as well as a strong position in many key markets. That means the company could offer a favourable risk/reward opportunity versus other UK dividend shares over the long run.

Building a diverse portfolio

Clearly, it takes more than two UK dividend shares to build a passive income portfolio. Diversification is likely to be of even greater importance at the present time as a result of the risks facing the world economy.

A variety of stocks within a portfolio may offer a more robust passive income that has a greater chance of being resilient. They may also have the ability to grow in a potential global economic recovery over the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Unilever and Vodafone. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »