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As good as it is, investors know that income is never guaranteed. That’s especially true if the company is going through a sticky trading spot. But this is exactly why I think it makes sense to only consider supporting companies with strong records of returning money to loyal shareholders on a regular (or almost yearly) basis.
Passive income powerhouse
FTSE 100 energy provider National Grid (LSE: NG) is a ‘nonsensical’ example due to its long history of paying dividends to those willing to take the risk of holding individual company stocks. Importantly, the company has also had good form when it comes to increasing the amount of money it distributes.
Now, I said ‘good’. I didn’t say ‘perfect’. Investors are currently in for a rare cut in FY25. This follows the Grid’s announcement that it will be raising £7bn to accelerate its transition to renewable energy sources.
As painful as this may sound, the dividend yield stands at 4.9%. That’s significantly more than the FTSE 100 tracker fund. It looks like it will be comfortably covered by the expected profit as well.
As a resource, the National Grid also strikes me as a safe option if (and that is ‘if’) the UK economy goes into crisis in 2025. We all need access to electricity, after all.
By owning its shares, investors will be paid for this dependence.
Benefits of protection
Another top-tier titan that offers a compelling combination of reliability and growth when it comes to profitability is the defense company. BAE Systems (LSE: BA). We’re talking year-on-year increases going back decades.
In fact, I would be surprised if this didn’t continue. Political anxiety has only grown as Ukraine’s conflict with Russia continues, pushing countries to increase defense spending budgets. From an investment perspective, that’s great news for the industry and BAE has been busy signing contracts left, right, and center.
So, what is the snag? Well, the 2025 climate yield stands at a nice 3%. Interestingly, the stock is also down 13% in the past month. I suspect some of the latter may be due to management sticking to previous guidance for earnings growth in their last trading statement.
As a very reliable source-there is a lot of income to hold ‘forever’, however, I think this takes some beating.
Monster harvest
To get more income diversification, investors should consider buying financial services providers Legal & General (LSE: LGEN). This gives the highest forecast yield for the three stocks mentioned here: a monster 9.4%. With equal positions, this would give us an excellent average yield of 5.8% across all three stocks!
Yes, there is no such thing as a free lunch. The main risk here is that Legal and General face greater economic concerns than the other two. To prove this, it was forced to take a knife to its profit stream during the Great Financial Crisis.
Fortunately, we have had consistent profit growth in the 15 years since then. And I just don’t see the administration wanting to disrupt this trend, especially if the UK economy has a healthy 2025.
In addition to this, there should be greater demand for stocks as interest rates fall and saving cash becomes less attractive.
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