I believe one of the best ways to generate a passive income is to buy UK shares. With that in mind, here are the five UK shares I would buy for a passive income in 2021.
Passive income shares
I think many investors make a mistake when they are looking for income stocks. They spend too much time concentrating on blue-chip equities. While these companies can be great income investments, blue chips only make up a small selection of the overall market. I believe there are just as many attractive income stocks in the small and mid-cap sections of the market.
I think gold mining group Centamin is a fantastic example. One of London’s largest listed gold miners, shares in this company currently support a dividend yield of 5.6%. The payout is only just covered by earnings per share, but I’m not too concerned about this because the organisation has over $320m of net cash on its balance sheet. According to my calculations, that would be enough to fund the payout for three years even if revenues evaporated.
Civitas Social Housing is another option I’d consider as a passive income investment. This group invests in regulated social housing across England and Wales. Investments in properties generate a steady income stream, which acts as a backstop for the company’s dividend payout. Due to this income stream’s defensive nature, the organisation was able to maintain its distribution in 2020. Analysts are forecasting a dividend yield of 5.1% for 2021.
NextEnergy Solar Fund Limited offers a similar investment case. The company’s goal is to provide investors with a steady dividend yield that increases with inflation over the long term by investing in solar energy assets. So far, the group has been able to achieve this aim. The payout has increased at a compound annual rate of 5.5% since 2015. The shares offer a dividend yield of 6.6% at the time of writing.
UK shares to buy
Asset and wealth manager Rathbone Brothers may not be the first company one thinks of when looking for passive income investments. Still, this business has an enviable dividend track record. The stock currently supports a dividend yield of 4.3%, and the payout has increased at double the rate of inflation every year since 2014. Analysts expect the group to benefit from a substantial increase in revenues from trading commissions for 2020, which could lead to earnings growth as much as 23%. In my opinion, this expansion could underpin additional dividend growth in the years ahead.
Soap and detergent producer PZ Cussons is one of the UK’s oldest public companies. It has been a public business since 1953, and during this time the stock has established a reputation for itself as being a solid defensive income play. At the time of writing, the shares support a dividend yield of 2.7%. The payout is covered twice by earnings per share, which leaves plenty of room for management to increase the distribution in the years ahead.