These are 3 of my top passive income ideas

Some of my favourite passive income ideas are UK dividend shares. I like the automatic dividends and the fact that I don’t need to use up time or energy to get the income. Here are three stocks I would consider buying now.

High-yielding share

As I recently pointed out, mining giant Rio Tinto (LSE: RIO) is a FTSE 100 share with a dividend yield of over 6%. When I’ve filtered for quality dividends, it comes up alongside only three other investments based on my criteria. For background, my criteria were: dividend cover of more than 1.5 times; five-year EPS compound annual growth rate (CAGR) of more than 15%; return on capital employed (ROCE) of more than 10%, dividend per share CAGR of more than 9% and a price-to-earnings (P/E) ratio of 0.8 or under.

The fact that Rio Tinto came up after this screening, could indicate it’s a passive income share worth adding to my portfolio. It could do well if iron ore prices recover, which is a significant part of its income.

On the flip side more money going into ESG investing, (investments with solid environmental, social and governance records), could hold back the share prices of miners. The price of iron ore is also beyond its control and could continue to fall, this would very likely hit the share price. 

Two dividend growth shares

When it comes to passive income I also want to see very sustainable dividends. There are two dividends I think have room to grow for many years to come because there’s a high level of dividend cover, reasonable dividend growth and a business model that should support earnings growth. They come from Sureserve (LSE: SUR) and GB Group (LSE: GBG).

The former is a property services group. It should benefit from the growth of smart meters and the drive to make buildings greener.

Dividend cover is over four, showing there’s plenty of room for bigger dividends in the future. This is part of what makes it a top passive income idea from my perspective. 

In summer 2020, the group paid off all its borrowings, putting it on a much better financial footing. That should also help more earnings filter through to dividends because less money goes towards repaying loans.

However, Sureserve is a pretty low-margin business and its work can be replicated by other groups, so it does not have much of a competitive moat. I think these risks are partially offset by its size and the large contracts it has with social housing groups.  I’m keen to add more shares to my portfolio.  

Technology group GB Group is another dividend growth passive income idea that I like. As with Sureserve, it also has dividend cover of around four. Dividend per share CAGR has been 34% over the last three years, which is good. The payout ratio is only 25% meaning the business is reinvesting well for future growth and not paying out too much money as income.

As with any tech stock, there’s a risk its technology gets out-innovated and competitors steal market share. Also, earnings per share growth have taken a hit recently. But I back GB Group to get back in the groove. I’m tempted to add it to my own portfolio for sustainable passive income. For me, it’s a top passive income idea, when it comes to getting dividends from UK shares.