My investing goal is to build a portfolio that can provide me with passive income in retirement. In order to do that, I’m looking to invest gradually over time.
Part of that plan involves reinvesting the dividends that I receive. But I also have new money to use in buying stocks in September.
This month, I have around £1,000 to invest. There are two dividend stocks that have caught my eye in my quest to generate lifelong passive income.
Federal Realty Investment Trust
At the top of my list at the moment is Federal Realty Investment Trust (NYSE:FRT). This is a real estate investment trust (REIT) that makes money by leasing retail space to its tenants.
In order to facilitate its growth, Federal Realty has increased its share count by around 25% over the last decade. This is the main drawback with the stock.
As I see it, though, this is a small downside for a very good company at an attractive price. Federal Realty is a dividend king, meaning that it has raised its distribution to shareholders each year for the last 50 years.
I think it’s worth taking a moment to think about what that entails. It means that the organisation increased its payouts following the 9/11 attacks, the 2007/08 financial crisis, and the global pandemic.
This demonstrates to me that the company finds ways to move forward even in difficult times. In an uncertain economic and political environment, I think that this consistency is valuable.
Over the last month, the stock has fallen by just under 5%.
As a result, the dividend yield is now over 4%, which I find very attractive.
GSK
I’m also looking at GSK (LSE:GSK) as a passive income opportunity. I don’t usually invest in pharmaceutical stocks, but I think that this one is just too cheap for me to ignore at the moment.
Shares in GSK have fallen by almost 19% over the last month. This is because of a lawsuit concerning potentially cancerous side-effects of Zantac, a heartburn medication.
So far, the Zantac litigation issues have caused GSK’s market cap to fall by about £30bn. To my mind, that looks far too extreme.
I was reading the other day that settlements for drug side-effects tend to be in the region of $2bn-$7bn. I take this to mean that a £30bn decline in market cap is pricing in the very worst.
More generally, though, I also don’t think that the legal issues are likely to have an enduring effect on GSK’s business. The company’s competitive position is supported by patents and intangible assets that have nothing to do with Zantac (which is available without prescription).
Of course, there’s a risk that the lawsuit could come out worse than I’m anticipating. But I think that the market’s pricing of the stock at the moment is factoring in the worst.
At current prices, GSK looks like a buying opportunity to me. So I’d look to add shares while the dividend yield is above 4%.