Among passive income ideas, one of my favourites is investing in UK dividend shares. Here are four such ideas I would consider at the moment to boost my passive income streams.
Legal & General
With its 6.5% yield, if I invested £1,000 in Legal & General (LSE: LGEN) now, I would expect to receive £65 a year in passive income in the coming year. Over time that amount could increase. The company has a good history of raising its dividend when business is good. However, that it not guaranteed. There is a risk that the insurer could suffer from falling profits if, for example, insurance rates fall.
Legal & General has a strong brand, established customer base, and attractive yield. It is the sort of sizeable FTSE 100 company I would feel comfortable holding in my portfolio and collecting dividends from without paying too much attention to its day-to-day performance. That said, the share price is 45% above where it stood last autumn. So while I find it attractive even at the current share price, I would also look out for any price dips which might offer me an even more attractive prospective yield.
British American Tobacco
Tobacco shares are popular passive income ideas. While I also like Imperial Brands, its rival British American Tobacco offers more even passive income. Imperial pays two large and two small dividends each year, while BAT’s quarterly payouts are all the same size.
The company’s massive free cash flows help support its dividend. With a yield of 7.7%, it is one of the juiciest on offer in the FTSE 100. BAT has also raised its dividend annually for over two decades. But as cigarette consumption falls in some markets, it may be harder to sustain let alone raise the dividend.
Passive income ideas in telecoms: Vodafone
Telecoms giant Vodafone (LSE: VOD) is another name on my list of passive income ideas. At the current price, the shares yield 6.3%.
While some industries such as tobacco battle falling demand for their product, I think telecoms usage will continue to grow steeply in coming decades. Projects like the 5G rollout increase customer expectations, and that helps demand grow yet further. That isn’t all good for a company such as Vodafone, though. Growing revenues is one thing, but increasing profits can be more difficult – especially in a regulated industry like telecoms. Vodafone already has a lot of debt and that could get bigger if it needs to keep investing in costly infrastructure.
But with its iconic brand, strong European presence, and proven ability to turn a substantial profit, Vodafone still rates among passive income ideas I’d consider for my portfolio.
On the topic of infrastructure, my fourth passive income idea is electricity network operator National Grid. Its yield is the lowest of my four picks, at 5.2%. But I appreciate its relatively stable customer demand and entrenched market position.
High barriers to entry mean that much of its business faces little competition. All shares carry risks, though, and changing patterns of electricity consumption could lead to higher capital spending requirements, eating into profits.
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Christopher Ruane owns shares in British American Tobacco and Imperial Brands. The Motley Fool UK has recommended British American Tobacco and National Grid. 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.
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