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Urban Logistics REIT 

What it does: Urban Logistics REIT owns and operates more than 100 warehouses single-occupant designed for ‘last mile’ delivery.

By Royston Wild. Recent panic selling of UK assets has pushed prices of many top property stocks sharply lower. As a result, I believe Urban Logistics REIT (LSE: SHED) is an attractive buy for investors this November. 

At current prices, the FTSE 250 firm’s dividend yields for the next two financial years sit at an enormous 6.1% and 6.5% respectively. 

Property shares often provide investors with solid protection against high inflation. This is because they are usually able to raise rents in order to eliminate (or at least offset) increasing cost pressures.  

With UK inflation at 40-year highs and tipped to go higher, Urban Logistics could therefore be an effective wealth preserver. 

I wouldn’t just buy this REIT for the here and now, however. I’m expecting earnings (and consequently dividends) to grow strongly over the next decade as e-commerce steadily expands. 

Demand for the warehouses and distribution properties it owns appear on course to improve rapidly. And rents will likely stride higher given the weak construction outlook for this particular sector.

Royston Wild does not own shares in Urban Logistics REIT. 

LondonMetric Property

What it does: LondonMetric property is an urban logistics real estate manager with 17 million square feet in its asset portfolio.

By Zaven Boyrazian. LondonMetric Property (LSE:LMP) has been on a roll lately. Despite what the 33% drop in share price would suggest, the urban logistics property manager is seemingly thriving. In fact, as of October this year, occupancy stands at an impressive 99%, with an average lease term of 12 years among its tenants.

Even with e-commerce slowing on the back of reduced consumer spending, demand for urban logistics centres continues to grow – a trend management seems to be capitalising on successfully. As such, the stock offers an impressive 5.5% dividend yield.

With interest rates rising, real estate investment trusts like Londonmetric Property have been hit hard due to their high debt balances. But a closer look at the company’s loans reveals that 80% of its debts are either hedged or on a fixed rate.

In other words, the threat of rising interest rates to this business may not be as disastrous as many think. And that’s why I believe a buying opportunity in this stock has emerged for me.

Zaven Boyrazian does not own shares in LondonMetric Property.

Diversified Energy Company

What it does: Diversified Energy Company owns and operates around 67,000 mature natural gas and oil wells in the US.

By Charlie Carman. Diversified Energy Company (LSE: DEC) shares have climbed nearly 17% this year. The FTSE 250 stock offers a handsome 11% dividend yield.

A key reason I’m bullish is President Biden’s drive for American energy independence. As a domestic producer, the firm should benefit from White House policies designed to combat spiralling commodity prices fuelled by the Russo-Ukrainian war and OPEC+ production cuts.

In addition, I’m encouraged by the company’s recent share buyback scheme to capitalise on sterling’s weakness against the dollar.

Admittedly, DEC posted a $935m net loss in H1 2022, which concerns me. I’m also sceptical about the accounting accuracy of decommissioning liabilities, which assumes its old wells will survive until 2095.

Nonetheless, the business model looks healthy overall. In particular, I like the robust 22% free cash flow yield that underpins DEC’s market-leading dividend. With supportive government policies acting as a tailwind for the foreseeable future, I’d buy this stock in November.

Charlie Carman does not have a position in Diversified Energy Company. 

DS Smith

What it does: DS Smith provides sustainable packaging solutions, paper products and recycling services worldwide.

By Kevin Godbold: Despite all the gloomy economic news around, DS Smith (LSE: SMDS) issued an upbeat trading statement on 10 October.

The company reported “good and consistent” trading. And the directors said overall performance for the year will likely be ahead of their previous expectations. DS Smith is one of many businesses that have been confounding the market’s expectations recently.

I like the company’s robust cash flow record — ideal for supporting its progressive dividend policy. And after prudently skipping a few dividends in the depth of the pandemic, DS Smith has jumped straight back in to the groove of pushing the shareholder payment a little higher each year.

There’s competition in the sector. But DS Smith is well established. And I think the industry has a tailwind. Meanwhile, with the share price near 290p, the forward-looking yield is running at around 6%. I think that’s attractive.

Kevin Godbold does not own shares in DS Smith.

Imperial Brands

What it does: Imperial Brands is a multinational tobacco company and is the world’s fourth-largest international cigarette company measured by market share.

By John Choong. The Imperial Brands (LSE: IMB) share price has remained rather robust this year, outperforming its parent index by quite some margin. Not to mention, its excellent dividend yield of 7% paired with a solid history of payment makes it a lucrative income stock to buy for my portfolio.

Luxury goods tend to benefit during times of inflation due to their inelastic demand. Most of Imperial’s products are catered to a niche market, and has been evident in the company’s last couple of results. Although growth hasn’t been stellar, it’s certainly been robust, while dividend payments continue to increase. The company also recently announced a share buyback programme, which should bring more value to shareholders.

With its next ex-dividend date estimated to be later this month, I’m planning on starting a position and capitalising on the ability to generate passive income in the current inflationary environment.

John Choong has no position in Imperial Brands.

Direct Line

What it does: Direct Line provides motor and general insurance in the UK.

By Christopher Ruane. Insurance tends not to be a very exciting business. In fact, it is often rather boring. As an investor, though, that is precisely why I like it. Demand is relatively stable, proven operators have enough experience to price risks at the right level, and the business model does not look like it will stop working any time soon.

Direct Line (LSE: DLG) has those characteristics. It avoids the more exotic corners of the insurance market and is highly profitable.

Right now, Direct Line shares yield 11.4%. That is certainly attractive to me, which is why I own some. It is also high compared to most FTSE 250 peers, though. Does that suggest a cut is coming? Rising vehicle costs pose a threat to profit margins and that could continue in coming years. But the company’s business model, iconic brand and large dividend make it appealing to me.

Christopher Ruane owns shares in Direct Line.

Tritax Big Box

What it does: Tritax Big Box REIT owns, manages and develops logistics real estate in the UK.

By Paul Summers: My pick for November is FTSE 250-listed real estate investment trust (REIT) Tritax Big Box (LSE: BBOX). Having tumbled over 40% in value in 2022, its shares yield a very respectable 4.9%. 

Now, I could shoot for more income elsewhere. However, I’d rather back Tritax for two reasons. First, it’s a relatively low-risk way of tapping into the ongoing growth of e-commerce (the company provides warehouses for some of the biggest retailers around).

Second, the fact that REITs are able to raise rents to cover rising costs without too much fuss makes Tritax a great option for battling inflation. 

Having coveted the stock for so long but been put off by the price tag, now could be an excellent time for me to begin building a position by buying its shares in November. 

Paul Summers has no position in Tritax Big Box.

Aviva 8 ⅜% PF 8 ⅜ CUM IRRD PRF #1

What it does: Aviva is a multiline insurance company. Its preferred stock pays a fixed dividend of 8.375p per year.

By Stephen Wright. My best British income stock for November is Aviva 8 ⅜% PF 8 ⅜ CUM IRRD PRF #1 (LSE:AV.B) Catchy name, but what is it?

In short, it’s Aviva’s preferred stock. Unlike the common equity, the stock pays a fixed dividend of 8.375p per year. 

That dividend has to be paid by management before any dividends get paid to common shareholders. And if it doesn’t get paid in a particular year, it rolls over and all of the outstanding dividends have to be paid to preferred shareholders before any are paid to holders of common stock.

The shares can’t be bought back by the company outside of an Extraordinary General Meeting. So I expect to keep receiving the dividends from these for some time.

In a turbulent market, I’m looking for something relatively predictable. That’s why I’ve settled on this as my choice.

Stephen Wright owns shares in Aviva 8 ⅜ PF 8 ⅜ CUM IRRD PRF #1.

M&G

What it does: M&G is a savings and investment management company, managing shares, real estate and other assets.

By Alan Oscroft. Like others in the investment management business, M&G (LSE: MNG) has fallen out of favour among investors in the current economic crisis.

The share price slumped when inflation started escalating a few months ago. After a modest October recovery, though, M&G is only around 10% down over the past 12 months.

That still leaves the forecast dividend on a hefty 10.5% yield. It’s risky relying on a dividend forecast. But M&G is currently engaged in a share buyback programme, which suggests it has the cash available.

The incoming chief executive and the chairman both bought M&G shares in October, which is also encouraging.

In the first half, its Wholesale Asset Management business achieved net client inflows for the first time since 2018. The second half could prove tougher, and that’s where the short-term risk lies.

But I’ll be considering M&G as the next stock for me to buy as a long-term dividend investment.

Alan Oscroft does not own M&G shares.

BlackRock World Mining Trust

What it does: BlackRock World Mining Trust in an investment trust that runs a diversified portfolio of global mining stocks.

By Ben McPoland. The decarbonisation of the global economy is going to take many decades. And this transition is going to need a lot of raw materials. Whether it’s iron ore to make wind turbines or lithium for the batteries of electric vehicles, decarbonisation is a massive tailwind for mining companies. The BlackRock World Mining Trust (LSE: BRWM) is perfectly placed to capture this demand, I believe, as it has positions in most of the companies mining and selling these vital raw materials.

Some of the trust’s largest holdings include BHP Group, Glencore, and Rio Tinto. It has a dividend yield of 7%, and the payouts have increased substantially over recent years

It should be noted that mining shares can experience much more volatility when compared to other investments. However, I’d be inclined to see dips in the trust’s stock price as opportunities to buy more for my holdings. I intend to start a position myself in November.

Ben McPoland has no position in BlackRock World Mining Trust.

Here, I’m going to look at the Imperial Brands dividend forecast for the years ahead. I’ll also discuss whether I would buy the stock for income today.

Bigger payouta

Before revealing the dividend forecasts, it’s worth highlighting the fact that Imperial Brands’ financial year ends on 30 September. I’ll refer to the year just passed as ‘FY2022’. This year, ending 30 September 2023, is ‘FY2023’.

As for the projected payouts, presently, City analysts expect Imperial Brands to pay out 143p per share for FY2022 and 146p per share for FY2023. So the payouts are expected to be larger than FY2021’s. At the current share price of 2,037p, these estimated payouts equate to yields of 7% and 7.2%. This suggests Imperial Brands could continue to be a cash cow for investors.

It gets better though. You see, Imperial Brands recently launched a substantial share buyback programme. Earlier this month, it said that it plans to repurchase £1bn worth of its own stock between 7 October and 30 September 2023.

Share buybacks don’t benefit investors immediately in the same way that dividends do. However, they are another form of shareholder returns. Buybacks reduce the number of shares on the market, pushing earnings per share up (making a stock more attractive from a fundamental analysis perspective).

Imperial has said that total capital returns in FY2023 are expected to exceed £2.3bn, representing around 13% of the current market capitalisation. In other words, the total yield here (including dividends and share buybacks) for FY2023 could be closer to 13%. That’s impressive.

Are Imperial Brands shares worth buying?

So would I buy Imperial Brands shares for my portfolio today? The answer to that question is no.

There is plenty to like about the stock. For example, I like the fact that the company is quite defensive in nature. In a recession, smokers tend to keep smoking. I also like the stock’s valuation. Currently, IMB has a forward-looking P/E ratio of just seven. So it’s quite cheap.

Another plus is the group’s dividend policy. Right now, Imperial Brands is aiming to grow the dividend annually, taking into account underlying business performance.

What concerns me however, is the lack of top-line growth here. In FY2021, revenue was up just 1.4%. Meanwhile, for the year just passed, Imperial is expecting revenue growth of just 1%. This lack of growth could have implications for dividend growth in the long run.

Another issue for me is regulatory uncertainty. All over the world, governments are cracking down on tobacco companies.

A third concern is debt on the balance sheet. At 31 March, net debt stood at £9.8bn. This is an issue in a rising interest rate environment. Higher interest payments could impact the company’s ability to pay dividends.

Given these issues, I’m happy to pass on Imperial Brands shares for now.

Up and down

Imperial’s shares are up 21% year to date. Tesco’s are down 31%.
 
The theme continued on news from the two companies last week. A trading statement from Imperial produced a 2.5% rise on the day, while Tesco’s half-year results provoked a 4.1% fall.
 
Why the contrasting fortunes? And where will the stocks go from here?

Imperial in line

Imperial updated on its performance for its financial year ended 30 September. It said trading had been in line with its previous guidance. And that it expects to report full-year net revenue and adjusted operating profit growth of around 1% at constant currency.
 
Management also reiterated guidance for the next three years. It continues to expect low single-digit constant currency net revenue growth, with adjusted operating profit accelerating to deliver a mid-single digit compound annual growth rate over the period.

Improving returns

Imperial said it’s completed the two-year ‘strengthening’ phase of its five-year strategic plan, announced in January 2021. And is now moving into the next three-year ‘improving returns’ phase.
 
In addition to the existing “progressive dividend policy,” the company has started “an ongoing, multi-year share buyback programme” with immediate effect.
 
This means investors who stick with the company for the long term should not only receive a flow of rising dividends, but also an increasingly larger slice of the ownership of the business. All being well.

Deep in value territory

As I’m writing, Imperial’s shares are trading around the £20 mark, compared with a 52-week low of nearer £14. Buyers of the stock today are paying 7.6 times the earnings expected in the full-year results. The dividend yield is 7.1%.

Despite the strong rise in the share price this year, the earnings multiple and yield remain deep in traditional ‘value’ territory.

Tesco sets out its stall

Tesco reported a constant currency 3.5% rise in sales (excluding VAT and fuel) in its first-half results for the six months ended 27 August. However, adjusted operating profit was down 9.8%.
 
The company said the lower profit was due to the impact of reduced year-on-year volumes (as a result of a post-pandemic normalisation of trading), cost inflation and keeping the price of the weekly shop as affordable as possible for customers.
 
Tesco unwisely took its customers for granted during the hard times of 2008/09. I reckon the current strategy of doing its best for them — at the cost of lower profit margins — is the right way to go for the longer-term good of the company. 

Guidance

Despite the headwinds, management maintained its retail adjusted operating profit guidance for the full year within its previous range (£2.4bn-£2.6bn), although pulled it to the lower end: between £2.4bn and £2.5bn.
 
More positively, it upgraded its retail free cash flow guidance (previously £1.4bn-£1.8bn) to “at least £1.8bn.”
 
Nevertheless, the board also cautioned that “significant uncertainties in the external environment still exist, most notably how consumer behaviour continues to evolve.”

Valuation

Tesco’s share buyback programme, which started in October last year, hasn’t done a lot to support the share price. As I’m writing, the shares are trading near to £2, compared with a 52-week high of around £3.
 
On the plus side, this means Tesco’s been able to buy back a lot more shares at a lot lower prices as the year’s gone on.
 
Buyers of the stock today are paying 9.3 times the company’s trailing 12-month earnings. And the running dividend yield is 4.2%.

At the checkout

Tesco’s earnings multiple is higher than Imperial’s and its dividend yield is lower. However, the supermarket’s rating is by no means rich.

If you believe — as I do, and the company’s management does — that Tesco has “the right long-term strategy,” you may well be inclined to see value in the stock today.

Meanwhile, despite a strong share-price rise and perennial worries about the future of the tobacco industry, Imperial’s earnings multiple and dividend yield continue to look attractive to my eye.

I’m only sorry I didn’t buy the stock this time last year when our Motley Fool Share Advisor analysts identified it as their top pick for income and growth.

As we enter this potentially trickier economic phase, I’m looking at the best passive income shares for my Stocks and Shares ISA.

20% dividend yield?

Currently, the FTSE 100 yields around 4.2%. Last year, I would have said that was pretty reasonable. But with interest rates climbing and expected to rise further, I would prefer a much larger dividend yield right now.

Thankfully, the Footsie isn’t short of high-yielding shares. The largest dividend can be had from housebuilder Persimmon (LSE:PSN). It currently offers a dividend yield of a whopping 20%. That’s enough to make £1,000 a year in passive income from my £5,000 investment.

That said, I’d be cautious about this. I reckon it’ll be difficult to sustain such a yield, and there’s a chance it could be cut significantly. That can often happen when there’s a change in a company’s earnings.

With mortgages becoming increasingly expensive, property prices could fall over the coming year. That could affect housebuilders’ earnings, which in turn could lead to dividend cuts.

Reliable passive income

So where can I find reliable dividends? I’d look to non-cyclical businesses that could continue to perform well in an economic downturn.

For instance, Imperial Brands (LSE:IMB) sells established products that are less affected by rising prices. It currently offers a 7% dividend yield that’s well-covered by its earnings.

In addition, it has a considerable track record of distributing income to shareholders, and it has been paying dividends for at least 25 years.

Its share price has risen by a remarkable 39% over the past year, but I think that’s partly due to its stable properties in times of crisis. But with a price-to-earnings ratio of just 7x, I’d still consider it to be cheap.

Bear in mind that when the economy picks up again, this stock could underperform other faster-growing options. That said, I’d still buy this share for its defensive properties.

Wind in its sails

Another reliable passive income share I’d buy is SSE (LSE:SSE). This renewable energy provider currently offers a 6% dividend yield. Like Imperial, SSE also has a multi-decade track record of paying dividends to shareholders.

Although future payments aren’t guaranteed, it gives me some comfort in its management’s dividend policy.

When looking for the best passive income, I’d say it’s important to find affordable dividends. One metric that I look at is a share’s dividend cover. This measures how much a companies’ dividend is covered by its earnings.

SSE has dividend cover of 1.4 times. As it’s comfortably above one, I’m confident that it’ll be able to afford its payments.

What I like about SSE is that it has a fully-funded investment plan over several years, and reasonably clear visibility of its earnings. It also aligns with long-term UK climate and energy security goals.

There’s always a risk that windfall taxes are applied by Governments, which could impact earnings slightly.

Overall, if I had £5,000 to invest right now I’d split it across both of these shares to aim for lifelong passive income.

But there are some out there that seem to be largely immune to economic conditions. And some are paying big dividends. Imperial Brands (LSE: IMB) looks like one.

The Imperial Brands share price has fallen 35% over the past five years, presumably because investors don’t think the tobacco industry has a long-term future. But I don’t agree. And seeing a 33% share price gain in the past 12 months, I think the markets are re-evaluating the stock.

Dividend yield

Even after the recent gains, forecasts still put the Imperial Brands dividend yield as high as 7%. Those who managed to buy at Imperial’s low point in March could have locked in close to 10%. And they needed to buy significantly fewer shares to generate the same passive income.

On top of the big dividend, Imperial Brands has recently commenced a £500m share buyback. And a share price boost followed. It should be good for future dividend yields too, as the cash will be spread across fewer shares.

First half

In the first half of the current year, Imperial’s reported figures looked weak. But on an underlying basis, the company saw a 2.9% increase in operating profit, with earnings per share up 7.7%. The interim dividend was lifted 1%.

Chief executive Stefan Bomhard made Imperial’s long-term strategy clear, emphasising its focus on the next generation of tobacco products. He told us: “We are now 18 months into our five-year strategy to build a more sustainable Imperial capable of consistent growth“.

We also heard that “In next generation products, consumers have given positive feedback on our recent trials“, and that new roll-outs will follow.

Risks

Together with the firm’s strong cash flow, this supports my confidence in the long-term dividend. But there are risks.

One is that Imperial carries a fair bit of net debt, at £9.8bn. But that was £1.2bn down on the same period last year. And it represents 2.4 times adjusted EBITDA, which doesn’t seem too onerous. It should come down further by the end of the year, but it is still a concern.

The other risk is the uncertainty of the company’s five-year plan. We’re still in its early days, and refocusing plans do go wrong sometimes.

How much?

To buy those 850 shares, and bag that £100 per month in passive income, how much would I have to shell out? It comes to a little over £17,000, which is not exactly small change. And if I didn’t have it, how else could I get there?

If I invested £100 per month in Imperial Brands shares starting now, I’d be able to accumulate almost the exact sum I need in 10 years.

There are a few assumptions there. That the annual total return remains the same at 7% per year, and that I reinvest all dividends in more shares. But it could be a good way of turning surplus cash that I don’t need today into passive income for the future.

Smoking hot?

The shares in Imperial Brands (LSE:IMB) have performed comparatively well recently. In the past six months, they’re up 17% and currently trade at 1,990p.

The firm – a cigarette manufacturer – has a very attractive dividend yield of 6.98%. For the year ended September 2021, the company paid a dividend of 139.08p. 

I’m aware that dividend policies may be subject to change in the future. But it’s good to know that I could derive this relatively high level on income. 

The firm also published sparkling results for the year ended September. In the report, the business stated that it had traded in line with expectations. Furthermore, it’s embarking on a £1bn share buyback scheme. This is appealing to me, a potential investor, because it means the possibility of more income. 

These schemes are essentially ways for companies to return profits to shareholders. They’re an indication that the business is in a strong financial state of health. 

There is, of course, the threat posed by inflation. It’s possible that higher costs and wages could lead to diminishing profits. Despite this, the firm has increased its market share across many important economies in Europe.

A high oil price

Second, Shell (LSE:SHEL) shares have been volatile of late, having climbed nearly 11% in the past six months. At the time of writing, they’re trading at 2,349.5p.

The oil and gas giant paid a dividend of $0.89 per share in 2021. At current levels, this equates to a yield of 2.82%

The business has been benefiting from markedly higher oil prices. These have been caused by heightened demand following the pandemic. Furthermore, a perceived supply shortage after the Russian invasion of Ukraine sent prices to well over $100 per barrel. 

Unsurprisingly, for the three months to 30 June, the company posted profits of $11.5bn. In addition, its refining profit margin per barrel tripled, quarter on quarter, to $28 per barrel. 

One concern of mine is whether oil prices can remain elevated for long. The factors leading to the price spike may also be resolved in coming months. Despite this, the winter period may bring with it increased demand for oil for customers to heat houses.

Overall, both of these well-established businesses boast solid dividends. Underpinned by strong results, it’s likely that these dividend policies could continue for the foreseeable future. With that in mind, I’ll add both companies to my portfolio soon.

For that reason, I have decided to use the price-to-earnings (P/E) ratio of each company in the index, and compare this with their relative sector. My filter aims to highlight companies trading at the lowest 1% of P/E ratios within their respective sectors.

Redrow

The first company identified by my filter was Redrow (LSE: RDW), a residential housebuilder primarily operating throughout England and Wales. This company trades at a significant discount from pre-pandemic levels, down 52.9%.

Interestingly, the company’s reported earnings per share have increased considerably from the 2020 financial year. This increase in earnings, combined with significant falls in the share price, has resulted in the P/E ratio falling to almost a third of 2020 levels.

Redrow now has a P/E ratio of just 4.4. That’s below the sector average of six, and the lowest in the sector. The company also has several strong underlying fundamentals, with good cash generation, low debt, and a high dividend. This yield is now forecast to hit 8%.

Despite this, it’s important not to ignore the reasons why the share has fallen out of favour with the market. Given this company is a housebuilder, there are several sector-wide risks, such as reduced demand, and house price falls, both of which could cause the share price decline to continue.

Nonetheless, I believe my filter has highlighted a good opportunity, and therefore I would add Redrow to my portfolio.

Imperial Brands

The second company on my list is Imperial Brands (LSE: IMB), the fourth largest tobacco company in the world. It is currently trading with a P/E ratio of 7.7. This makes it the lowest in the sector, compared to the average of 9.

The company has performed fairly well over the last two years, rising 5.3% in 2021, and 16.8% so far in 2022. However, over a longer time horizon the company’s share price has declined significantly. It’s down almost 55% from its peak in 2016.

It’s fair to say that despite the clear discount opportunity, the underlying fundamentals are more of a mixed bag. Earnings have increased steadily over the last three years, and profit margins are strong. Furthermore, the company has a forecast yield of 7.5% and has consistently paid a dividend for 25 years.

On the other hand, debt levels are rising, and cash generation is well below the three-year average. Additionally, earnings are forecast to decline over the next year, with turnover expected to follow the same trend. This is less encouraging and leads me to question whether this truly is a value investment opportunity.

For that reason, despite being the cheapest in its sector, I would not be tempted to add Imperial Brands to my portfolio, since the negative underlying fundamentals outweigh the discounted share price, in my opinion.

The Veblen Effect

Most companies tend to suffer during times of high inflation. This is because firms have to raise prices to combat rising costs. As a result, consumer demand drops as spending power takes a hit. However, certain companies are an exception to this norm. This is known as the Veblen effect.

It takes place when consumers buy more expensive products even though similar, lower-priced substitutes are available. This is mainly due to the belief that higher price equates to higher quality. Consequently, the share prices of such companies tend to remain robust and outperform major indexes during these times.

Smoking hot

First of my list of stocks to buy is Imperial Brands (LSE: IMB). Up 13% against the FTSE 100‘s 7% decline, Imperial shares certainly look lucrative to me. While tobacco is a sunset industry, Imperial has managed to offer a range of ‘luxury’ lines through a number of its brands to offset its decline. These include the likes of JPS, Davidoff, and Gauloises, which have the potential to continue gaining market share in the premium space.

This has resulted in Credit Suisse and UBS giving Imperial shares ‘buy’ ratings. Additionally, the stock has seen an upgrade to its price target, from £23 to £25.50. This is an approximate 40% upside to its current share price, including dividends.

Although the state of Imperial’s balance sheet leaves much to be desired, its dividends are what cause investors to stick around. Analysts are expecting a 2% upgrade on the company’s next declaration date in November. This would bring its full-year dividend to £1.42 per share.

Nonetheless, there are risks associated with Imperial. While its stock performance year to date (YTD) is impressive, it may not be able to keep this up when the market starts to recover. But I’m primarily buying shares in the tobacco stock to benefit from its defensive attributes during this inflationary period, and to earn some passive income in both the immediate and long term.

Coated in luxury

Next on my list is Burberry (LSE: BRBY). The British brand is well positioned to take full advantage of the Veblen effect due to the appeal of its luxe products. Despite its YTD share performance stagnating, the company posted a decent set of Q1 numbers a couple of months ago.

Excluding China, the company saw substantial growth in the Americas and EMEIA regions as countries came out of lockdown. This performance can potentially be replicated as China slowly emerges out of lockdown too. Given that approximately half of the firm’s revenue stems from China, this could present a huge tailwind to its sales numbers in the quarters to come.

All that being said, Burberry shares still hold a ‘neutral’ rating with a price target of £19.28. While this doesn’t suggest too much of an upside, these targets haven’t taken that tailwind of China’s reopening and a weaker pound into account. For that reason, I’ll be looking to buy more shares for my portfolio if the price drops below £18.

Of course, this list changes from time to time, but as Europe heads towards a recession, I’m avoiding investing in companies that are already battling declining trends. 

I’ve found three stocks that I will avoid buying at the moment. Let’s take a look at them. 

ESG nightmare

The first company I wouldn’t invest in is Imperial Brands (LSE:IMB). The British tobacco company has struggled in recent years due to increased global regulation and public health concerns on the impact of smoking. The stock is down almost 50% in the past five years. 

An increase in ESG-specific funds may also harm Imperial Brands. Investors could avoid buying shares in the company, instead opting for more sustainable corporations. 

It must be said, the company offers an enticing dividend. At 8.3%, it’s far higher than most FTSE 100 stocks, and if I was looking for passive income stocks then I may be tempted to invest. 

However, other than the dividend, I don’t think Imperial Brands offers much else. I wouldn’t be surprised if the dividend is cut in the near future as the company struggles to remain profitable. 

Increasing competition 

2022 has not been a good year for Royal Mail (LSE:RMG). The stock has experienced a large sell-off this year – it was trading close to 500p in January and is now only worth 200p. 

The company announced that, in Q1, the Royal Mail division revenue fell by 11.5%. Given declining trends in posting mail, I think the company will continue to suffer. 

On valuation terms, Royal Mail does look cheap. It has a price-to-earning (P/E) ratio of around 3.33, which is far lower than competitors such as FedEx, which has a P/E ratio of 11. 

Even though it appears cheap, I’d avoid the stock given the increasing competition from the likes of Evri and Inpost that offer similar services at competitive prices. 

Out of fashion 

The final stock I will never invest in is Boohoo (LSE:BOO). The AIM-listed fast fashion company’s stock has plummeted in the past year and is down almost 85%. 

Despite strong performance during the pandemic, growth has significantly slowed since. In the last trading quarter the company announced a 1% fall in UK sales. 

Boohoo’s diversified business model does mean that it might not be all bad news. The company already owns the likes of Karen Millen, Coast and Nasty Gal. A further string of profitable acquisitions in the near future could help the company regain some market share as it expands its target market.

The problem for me is that it’s not just declining sales affecting Boohoo shares. The constant stream of scandals and sustainability concerns continue to plague the company and drive investors away.

But identifying rewarding dividend stocks is tricky. Payouts can depend on the company’s quarterly and annual performance. Therefore, I favour companies that have a consistent dividend history alongside stable financial performances. Let’s look at two UK shares that stand out as key candidates for my passive income portfolio. 

M&G

Global investment manager M&G (LSE: MNG) currently trades just under 197p. Half-year results crashed the share price in August and it fell 12% to 196p. Yet the stock remained robust over the last 12 months with just a 1% fall. With an impressive dividend history, I think this UK share can help deliver the second income I’m after. 

M&G offers a 9.11% dividend yield. Its interim payout follows previous figures, with 6.2p per share to arrive on 29 September. A buyback should elevate shareholder value as £150m of a total £500m is deployed. By the end of September, M&G will have returned an impressive £1.5bn to investors since FY19. 

Yet the company needs to financially sustain this. Assets under management fell from £370bn at the beginning of FY22 to £349m in its half-year report. Management blamed this on adverse market movements. Consequently, post-tax profits plummeted 75% from a loss of £248m to £1.04bn. 

This suggests the dividend aristocrat may struggle to deliver future payouts. But I’m not concerned. M&G increased capital generation from £309m to £439m. Management also announced acquisition of Continuum Financial Services. This indicates the company can remain afloat through short-term profit falls and begin increasing revenues through its new customer base.

I think M&G can recover from its wavering financials and continue to deliver on its average final payout of 17.4p (since FY19). Indeed, I’ll be adding M&G shares to my passive income portfolio. 

Imperial Brands

Imperial Brands (LSE: IMB) is another UK share I’d consider. Strong revenue increases resulted in its share price leaping 10% in mid-May, while the tobacco company has seen a 26% rise over the last year. It now trades at 1933.

Yet the half-year report wasn’t all positive. Operating profits fell 27% to £1.2bn. A departure from Russian markets (estimated at £201m) and divestment from the Premium Cigar Divisions (£281m) clearly took a hit.  

However, the company has expanded its Pulze product range in European markets and Blu marketing proposition in the US. Net revenues from next-gen products increased 39.5%, totalling £77m. This indicates Imperial has successfully adapted to the changing market as consumers increasingly switch from cigarettes to electronic vapes. 

The company also boasts an impressive dividend history. With an average final payout of 167p since FY17. Its dividend yield currently stands at 8.4%. With the successful launch of NGPs in Europe and the US, I think payouts will continue to arrive at similar figures.

Despite a fall in operating profit, the company is increasingly adapting to its market and demonstrating high prospects in overseas markets. This gives me faith that Imperial can continue to deliver strong payouts for the foreseeable future. Imperial will certainly be a staple of my passive income portfolio.