One investing goal of mine is to generate more passive income. I want to be able to bring in more money from my holdings without having to constantly look for opportunities and actively manage my portfolio.
With UK stock investing, one of the ways I can do this is to look for companies that pay consistent dividends. Dividends are payouts that companies make to shareholders when profits are strong enough and when they’re confident about their outlook.
All companies reinvest in their own growth, but some invest more than others. Many FTSE 100 companies prefer to provide greater payouts to their shareholders.
While there are merits to both approaches, income shares are very popular and today I’m going to look at two UK stocks I’d buy to help me generate passive income through dividends.
Vodafone
Telecommunications provider Vodafone (LSE:VOD) is one of the most generous in the FTSE 100 when it comes to dividend payments.
Boasting a yield of 6.3% based on its current share price of 125p, Vodafone has been a favourite of income investors for years.
The company returned to profit growth in its most recent quarter, which encourages me. It’s one of the key players in a market with a high barrier to entry which I also like.
I’d be happy to invest in Vodafone for passive income generation, but there are risks I’m aware of.
The telecoms giant’s share price performance leaves a lot to be desired. If I look back at its performance over the last year (-11%), two years (-7%) and five years (-43%), it doesn’t have a great record for growth.
Vodafone is also an expensive business to run, considering the infrastructure needed to maintain its telecoms systems. This can hurt profits and could affect the dividend. But on balance, I remain upbeat about its prospects.
SSE
Another UK stock I think could provide me with solid dividend income is energy supplier SSE (LSE:SSE). It’s one of the largest suppliers of electricity and gas in the UK, with an enticing dividend of just over 6% at current prices.
One reason I think SSE would be a good addition to my portfolio is that it’s quite a defensive stock. Despite the economic difficulties of the last year, profits have remained strong as people still need their power supply.
While earnings for its full financial year are expected to be down, earnings per share are still forecast to come in between 85p and 90p. The company has also said it expects to increase its dividend payments as part of a five-year dividend plan.
SSE also committed early to the adoption of renewable energy sources and is one of the leaders in this space already, which offers potential for the future.
Again though, there are risks to be aware of when buying SSE shares. Share price growth has been less than impressive in recent years.
The price was 1,475p a year ago, but despite a climb to 1,612p on 8 January, the shares retreated to 1,313p on Monday. This may be due to regulatory pressure, after SSE was among a group of energy suppliers slapped on the wrist by Ofgem for overcharging customers.
I don’t see enough of a reason for that fall though. I do see a buying opportunity. Given SSE’s dividend yield, so I’d add it to my portfolio for passive income.