Passive income always appeals to me. It’s money that comes in without me needing to work for it, after all. But sometimes, passive income ideas are even more attractive than usual. Take UK dividend shares, for example. They are one of my favourite passive income streams. Lately, some have been marked down in price, meaning they are potentially even more lucrative than before.
Here are two UK dividend shares on sale now. I’d consider adding both to my portfolio to try and grow my passive income streams.
7% share price decline: British American Tobacco
Over the past year, while the FTSE 100 index has grown 19%, member company British American Tobacco (LSE: BATS) has lost 7% of its value. This week, its price has been at its lowest level since March.
I am considering adding more British American Tobacco to my portfolio while it’s on sale. The BATS share price performance over the past year has been notably lacklustre, but the business results haven’t. The company’s interim results showed adjusted revenue growing 8.1% and profit from operations 5.4%. Strip out the adjustments, though, and both numbers turned negative. But that reflects an ongoing risk with BAT: its global operations mean it is subject to exchange rate fluctuations. That can work against it – as in the first half – but sometimes it can also boost returns.Â
Impressively, the company cut net debt by 7.6%. It’s still high at £40bn, but the sizeable reduction shows the company getting into better financial health. That is good for shareholders, who have been rewarded with a dividend raise each year since the turn of the century. After its recent share price decline, BAT now yields 8.5%.
There are always risks with tobacco: declining demand could hurt revenues and profits. Historic dividend rises accordingly don’t necessarily indicate future payout trends. But with its 8.5% yield, BAT is one of my favourite passive income ideas at the moment.
26% share price decline: Reckitt
A big FTSE 100 faller over the past year has been consumer goods maker Reckitt (LSE: RKT). The Reckitt share price has tumbled 26%. It’s currently within 1% of its low point over the past year.
That has been good for the company’s yield, which now stands at 3.2%.
While that is a lot lower than BAT’s, Reckitt still features on my list of passive income ideas to consider for my portfolio. Its own portfolio of premium brands such as Dettol and Air Wick give it pricing power. I expect demand to remain strong even in the face of economic downturn, thanks to the company’s strong focus on health and hygiene.
There are still risks here, though, as with all shares. Rampant cost inflation could be hard to pass onto customers, threatening profits. The company’s problematic infant formula division continues to drag on its results overall, and that may remain the case in the next several years.
My next move on these passive income ideas
Both these blue chip companies are attractive to me as passive income ideas right now.
I would consider adding more British American Tobacco to my portfolio. I would also consider taking advantage of current price weakness to add Reckitt to my holdings and try to boost my passive income streams.