Investors always need to take extreme care when choosing which growth or dividend stocks to buy. This becomes even more critical when one is working on a limited budget and the chance to diversify (and thus spread out the risk) is lower.
There are always dangers involved with share investing. Markets can go up as well as down. And surprises can spring up that can blow a company’s previously positive investment case to smithereens.
But with some detailed research, investors can significantly reduce the risk to their wealth. Here are two high-dividend stocks I’d buy with my last £5k to generate long-term passive income.
Legal & General Group
Financial services giant Legal & General (LSE: LGEN) has one of the biggest dividend yields on the FTSE 100. A figure of 8% is more than double the index average of 3.9%.
In fact, the company has a long record of paying above-average dividends. This is thanks to its exceptional cash generation, which remains impressive to this day. Cash generation leapt 22% in the six months to June, to £1bn, which in turn drove its Solvency II capital ratio to 212% from 182% previously.
Legal & General is a go-to provider for customers in the fields of asset management, life insurance and pensions. As people become more financially conscious — and especially as uncertainty over the State Pension make retirement planning more important — I expect trading activity at the company to steadily rise.
Legal & General’ share price provides excellent all-round value today. As well as that huge yield, it carries a forward price-to-earnings (P/E) ratio of just 7.3 times. I’d buy it even though the worsening economic outlook could dampen profits growth in the near term. Those impressive cash flows make it too good to miss.
Assura
Real estate investment trusts (or REITs) are popular stocks for passive income. This is because they are required to distribute nine-tenths of annual profits out by way of dividends. Moreover, the predictable rents they receive give them the means to provide regular income.
Assura (LSE: AGR) is one low-risk REIT I’d buy for my own portfolio. It owns and operates primary health properties in the UK, demand for which is growing strongly as the country’s population rapidly ages and healthcare demand grows.
Of course, healthcare is also one of those industries that is largely unaffected by broader economic conditions. This gives Assura exceptional earnings visibility and helped it become a true dividend aristocrat. Shareholder payouts here have risen for nine years on the spin.
My only concern is how possible future changes to NHS policy could hit for GP surgeries and the like. Assura currently trades on a forward P/E ratio of 18.5 times. Meanwhile, City predictions that the annual dividend will grow for a 10th straight year leave it with a large 5.3% dividend yield.