I’ve identified two passive income stocks I’m considering adding to my holdings, which carry dividend yields of over 10%.
Dividends and yields defined
A dividend is a portion of a business’s earnings that it passes on to its investors as a reward for investing their capital.
A dividend yield can be determined by establishing the firm’s most recent dividend payment and then examining the current share price of the stock in question. For example, if a firm pays a dividend of 10p per share, and the share price is 100p per share, the yield equates to 10%.
It’s worth noting that dividends are at the discretion of the business and can be cancelled at any time.
Passive income stock #1
Rio Tinto (LSE:RIO) is one of the world’s largest mining firms with over 60 operations across 35 countries. It mines and sells aluminium, copper, iron ore, lithium and diamonds.
Rio shares are trading for 6,147p. This time last year, the shares were trading for 5,701p, which is a 7% increase over a 12-month period. At current levels, the shares look cheap with a price-to-earnings ratio of just 8.
Rio Tinto shares do come with risks, however. Commodities are volatile and their prices and level of demand can also be volatile. Demand and prices are often linked to the world economy as well as the geopolitical landscape. These issues can affect performance and shareholder returns of firms like Rio.
I believe Rio Tinto is an excellent passive income option for my holdings. It’s a global powerhouse in its respective industry, has a juicy dividend yield, the shares look well priced and it has a good track record of performance. I’d add the shares to my holdings to make a passive income from dividends.
Stock #2
My second pick is housebuilder Persimmon (LSE:PSN). Housebuilding is a key sector as demand for homes in the UK is still outstripping supply. Firms like Persimmon could benefit from this high level of demand, which could be with us for years to come.
The shares are trading for 2,185p. At this time last year, they were 3,161p, which is a 44% drop over a 12-month period. I’m not concerned by the share price drop. In fact, I think it’s an opportunity to pick up cheaper shares. Macroeconomic pressures have pushed many shares downwards, even passive income champions like Persimmon.
But it’s at the mercy of the current ongoing supply chain crisis and rising costs. Supply chain issues could cause delays in completing projects, which in turn, hav a knock-on effect on its ability to sell properties and its bottom line. This could affect any passive income stream I hope to make. Plus rising costs are eating away at profit margins, which could also put pressure on the share price and level of dividends too.
I believe Persimmon is a good passive income option. The shares are cheap with a price-to-earnings ratio of just 8. Its dividend yield also stands at over 10% currently. Persimmon operates in a burgeoning sector right now too. I’d add the shares to my holdings, despite the current macroeconomic conditions that I don’t think will last in the longer term.