The workman

My first pick is industrial equipment supplier Ashtead Group (LSE:AHT). This entity makes much of its profit Stateside but also has an entrenched presence in the UK. 

Its share price has been rising for the last week (up 5.71% at the time of writing), as is only fair for a company with such impressive financial fundamentals. 

Ashtead has a high operating profit margin (24.11%), meaning that it has passed the bulk of its inflation-induced expenses onto its customers.  This suggests that it will remain fairly insulated from further price rises. Reflecting this nous, its returns on invested capital outperform the majority of its rivals. 

Moreover, its growth potential makes it more than a safe store of wealth. Industrial businesses squeezed by inflation tend to rent new equipment rather than cough up for expensive new machinery. 

Consequently, Ashtead’s clientele is expected to grow, a feat that will undoubtedly be reflected in its share price. 

The aristocrat

Up next is the blue-blooded asset management company Schroders (LSE:SDR). 

Despite its illustrious reputation and more than 200-year-old pedigree, Schroders has fallen into something of hard times.

The whole British financial sector suffered from the recent financial turmoil, but Schroders in particular was exposed as swimming without trunks on when the tide retreated.

It was somewhat overexposed in its pension positions; serious injury was only averted by an emergency intervention by the Bank of England to rescue pension funds. 

Consequently, Schroders shares have declined amid questions of the company’s risk management.

While in the doghouse, I for one am inclined to give the private equity giant a second chance.

Its profitability is not to be scoffed at; indeed, its operating margin and profitability are outperforming half of its industry peers, (20.72% and 19.4% respectively). It is also posting steady earnings and revenue growth to boot.

This suggests that when the dust settles, Schroders will return to its natural position as part of the FTSE 100 furniture, its share price climbing with it.

The wildcard

Hargreaves Lansdown (LSE:HL) is a financial juggernaut, selling funds and shares to retail investors while also managing assets.

Its fortunes have been in freefall, shedding some 45.2% of its shares’ value this year. This has been attributed to the shellacking its reputation took after the Woodford fund collapse. As legal storm clouds gathered, its share price tanked amid uncertainty about its trajectory.  

However, despite the rout, Hargreaves Lansdown has impressive profit margins and revenue that is not reflected by its share price. It is expected to grow by 11.3% over the next year, beating its three-year average by 4.6%. 

Its large cash reserves and low debt means that it will likely weather its legal travails. A big perk of me holding this share is its dividend payments, which are expected to grow to 5.6% next year, above the 3.7% FTSE 100 average. 

Additionally, this dividend has been paid consistently for 15 years. Overall then, this volatile share could be a great source of passive income and financial returns. 

A growing business

The first business I’m focusing on is asset manager Schroders (LSE:SDR). In the past three months, the shares are down 12.6% and are currently trading at 2,640p.

For the six months to 30 June, the firm’s assets under management (AuM) grew by 1% to £773bn. 

This is positive news, especially given that rival companies have reported dwindling AuM figures. Ashmore, for instance, saw its AuM decline heavily in the first half of 2022. 

Also, for the same period, Schroders reported that operating profit increased by 2%, although pre-tax profit fell by 16%. This is likely the result of inflation, which is beginning to eat into the firm’s balance sheet. 

While many companies are suffering from inflation-related problems at the moment, I’d like to see pre-tax profits rise in coming quarterly reports.

Investment bank Credit Suisse recently upgraded the business, stating that it was trading at a “deep discount” and boasts a diverse portfolio.

It’s also in a good state of financial health, with cash of $5.09bn dwarfing its total debt of $373.5m. This should ensure that it can weather any storms that come its way in the short term.

Room for improvement?

Second, Premier Inn owner Whitbread (LSE:WTB) has seen its share price fall 9.55% over the last three months. At the time of writing, the shares are trading at 2,532p.

The firm was battered by the pandemic, which forced its hotels and restaurants to close for many months at a time. For the year ended February 2021, the company slumped to a £1bn pre-tax loss.

Threats remain, however, in the form of cost inflation.

Despite this, for the three months to 31 March, the business stated that it was seeing a continued rebound in demand after the pandemic. 

UK accommodation sales surged over 200%, compared to the same period in 2021. Furthermore, they remained over 21% higher than 2019 levels. 

As a potential shareholder, it was promising to read that total group sales were over 286% greater than the same period in 2021. While the firm definitely isn’t out of the woods yet, it’s clear that a recovery is in progress.

Overall, both of these lesser-known companies appear to be running smoothly. While both have suffered in recent years, they look to be recovering at a swift pace. Investing in both also gives me the chance to diversify my own portfolio. As such, I’ll use my £500 to buy shares in the two businesses soon. 

It looks as if it is only becoming more challenging for businesses to navigate change. Since 2000 the average life of UK companies has fallen from nearly 11 years to 8.5.

Still, while it is impossible to predict what the future holds for any business, I think some firms are better positioned for long-term success than others. By sticking with these organisations, I think I can swing the odds of finding a top-quality buy-and-hold stock in my favour.

There is one company that looks to me to have all the qualities I am looking for.

FTSE 100 buy-and-hold buy

The wealth management market is highly fragmented, and it is only becoming more competitive. In this market, winning companies have always had two desirable qualities, size and reputation.

Investors will only give their money to someone they trust, which is why reputation is essential. At the same time, keeping up-to-date with changing regulations and producing something investors want to pay for cost money. Smaller managers may struggle to meet these costs. This is where larger firms have the edge.

Considering all of the above, the one FTSE 100 stock I would buy to hold until 2030 is Schroders (LSE: SDRC).

This is one of the UK’s more storied asset managers. It is also one of the largest. According to the company’s figures, it manages £700bn for clients around the world. That is nearly $1trn, putting it in the ranks of the world’s top asset managers. In comparison, Hargreaves Lansdown has around £120bn of assets under administration.

As the global economy recovers and the ranks of the worlds richest expand, I reckon the demand for wealth management services will only grow. This could be great news for Schroders. Its size and reputation may only continue to attract assets.

Those are the reasons why I would buy and hold the stock to 2030.

As well as the above growth tailwinds, shares in the asset manager offer a dividend yield of 3%. Asset growth should help the company’s bottom line, which could allow the group to hike its payout to investors.

Risks and challenges

Schroders has some significant growth tailwinds behind it, but the FTSE 100 organisation does have challenges. It is one of the world’s largest wealth managers, but it is not the largest. It faces competition from larger US groups, all of which are competing for business in the same pool of customers. The firm has to stay on its toes, or it could lose market share to bigger players.

At the same time, new regulations could hurt the company’s bottom line. This is something no financial enterprise can avoid.

Despite these risks and challenges, I would buy Schroders for my portfolio, considering its growth potential. A decade of expansion could be on the cards as the firm expands its assets under management.

With that in mind, here are two UK shares I’d buy for my passive-income portfolio today. 

Passive income champion

The first company on my list is consumer goods giant Unilever (LSE: ULVR). With a dividend yield of 3.5%, at the time of writing, the firm is one of the most attractive income stocks in the FTSE 100.

The dividend is backed by income from the group’s portfolio of consumer brands. Most of these are billion-dollar brands, which are well-known and loved by consumers. This gives the company a solid competitive advantage, making it an even better income investment, in my opinion. 

One of the key threats facing any income investment is the threat of falling income. As dividends are paid out of company profits, the business will have less cash available to return to investors if profits fall. This could lead to a dividend cut. 

However, in the case of Unilever, I think it’s unlikely the company will ever see a substantial drop in income. Indeed, even in a severe economic depression, consumers are unlikely to stop buying products such as ice cream and deodorant.

That said, consumers may reduce their purchases if costs start to rise significantly. This is the most considerable risk facing the enterprise today. Rising prices could put consumers off purchases and increase group costs. This double headwind could hurt the company’s profit margins and put income under pressure. 

Still, I’d buy Unilever for my portfolio of passive income UK shares today despite these risks. 

UK shares to buy

The other company I’d buy is the asset management group Schroders (LSE: SDR). This stock has a dividend yield of 3.3%, at the time of writing. Earnings per share cover the payout 1.7 times. I reckon that leaves plenty of room for dividend growth in the years ahead. 

Schroders is one of the countries most storied wealth managers. This is its competitive advantage. It should also benefit from rising stock markets and an increasingly wealthy elderly population. These two factors should help the company grow assets under management and, as a result, fee income. 

These factors could help support dividend growth.

The asset management industry is incredibly competitive, which suggests the company will have to work hard to maintain market share. It could also face pressure from lower-cost competitors, offering clients the same service with a reduced fee. Regulatory challenges could also increase costs and reduce profits. 

Even after taking these risks and challenges into account, I’d buy the company for my passive income portfolio today. That’s because I believe it’s one of the best UK shares to buy for income. 

A resilient FTSE 100 dividend stock

First up is Severn Trent (LSE:SVT). The UK-based utilities company provides water and waste services to millions. It has some operations abroad as well. Over the past year the share price is only up around 3%, but the main focus for me is the fact that it’s a dividend stock. 

The dividend yield is currently above the FTSE 100 average at 4.1%. More than this, due to the performance of the company, I think it’s sustainable going forward.

Half-year results through to the end of September 2020 showed good resilience despite the pandemic. Revenue was down 2.5%, largely due to the decrease in metered revenue. Even though profit took more of a hit, the interim dividend per share of 40.63p was still confirmed.

This is because the company “recognises the critical role that dividends play in providing necessary income for pensioners and savers”. It has good liquidity, and £890m of unutilized facilities that it could call on, making the outlook for the company robust in my opinion.

A risk could be that the bad debt provisions set aside could spiral higher and be a drag on the company. An additional £8.2m of bad debt charges was recorded in the half-year report. This is something I’d want to keep my eye on with this FTSE 100 dividend stock.

A well-run investment manager

The second FTSE 100 dividend stock that I think is sustainable for the future is Schroders (LSE:SDR). The dividend yield currently offered is 3.23%. This might just beat the average in the index, but I think the fact that the dividend is robust makes up for this.

Schroders is a large investment manager, and so has to meet capital requirements from the regulators. As an investor, I see this as a positive, almost as if the business financials are being overseen by a third party.

The company primarily makes money based on the amount of assets held under management. In the 2020 financial year, assets under management increased 15% to reach a record high of £574.4bn. But higher operating costs meant that profit after tax was broadly the same as the previous year.

Good profits and good liquidity make me think that a dividend will continue to be paid to shareholders going forward. Over the past 10 years, the dividend yield for this FTSE 100 stock has averaged around the 3% mark.

One potential risk I see is the expansion of services in China that is being pushed. Given the nature of the Chinese system, I think Schroders needs to be careful here, as many companies that have tried to crack the Chinese market have come away licking their wounds.

FTSE 100 wealth manager

Schroders (LSE: SDR) this one of the world’s most respected wealth managers. It might not be the largest in the space, but its reputation is renowned around the world. This is the company’s most considerable competitive advantage. Larger American asset managers might have more money to manage, which allows them to achieve more significant economies of scale, but Schroders’ reputation works in a similar way.

Customers have flocked to the business over the past year, and it’s also benefited from rising stock markets. According to the company’s 2020 annual results, 75% of its managed funds have outperformed over the space of one year. And 81% outperformed over five years.

Based on these metrics, it’s no surprise to me that group assets under management increased to a record £574bn at the end of 2020.

As long as Schroders continues to do what it does best, find attractive investment opportunities for its clients, I think the FTSE 100 company could be a good investment. That’s not to say the business doesn’t face risks.

As mentioned above, larger competitors can offer clients a slimmer service for a much-reduced fee. What’s more, client retention depends on the group’s ability to outperform. If managed funds start to lag the market, consumers may go elsewhere. 

Despite these challenges, I’d buy the FTSE 100 stock for my portfolio as I believe it’s one of the best shares to buy right now. 

Shares to buy right now

Associated British Foods (LSE: ABF) is one of the few remaining family-controlled conglomerates on the London Stock Exchange. Its diversification has been helpful over the past 12-months.

While most of the company’s Primark value lifestyle stores have been forced to shut, its food division has picked up the slack. Group revenue from continuing operations for the 16 weeks ended 2 January was 13% lower than the same period last year. However, retail sales slumped 30% year-on-year. 

Based on this performance, I think this is one of the best shares to buy right now as a way to play the economic reopening. When the retail stores are allowed to reopen, they could provide a boost to overall group growth.

The main challenges the businesses face are clear. If lockdowns continue, there’s no chance the Primark brand will return to its former glory this year. Rising food prices may also compress margins at the group’s food division. This could hold back a recovery over the next 12-24 months.

Still, considering the group’s diversification and long-term potential, I’d buy the stock for my portfolio today.

One exception is top fund manager Nick Train, who runs the Lindsell Train UK Equity Fund. Train’s funds own around 10% of this business. Indeed, Lindsell Train is the company’s second-largest shareholder, after its founding family, who control around 45% of the voting stock.

Who is it?

The company in question is asset management group Schroders (LSE: SDR). This City stalwart was founded more than 200 years ago and has become known for taking a long-term and responsible approach to investment. This isn’t a business that chases quarterly earnings and short-term gains.

This approach has worked very well for long-term holders of this FTSE 100 income stock. Schroders’ dividend has not been cut for at least 30 years, which was as far back as I could research. That unbroken record includes the 2008 financial crisis and this year’s market crash.

If you’re interested, Schroders’ share price has risen by nearly 120% since 2000.

What’s so good about this business?

It’s surprisingly rare to find businesses that can deliver consistent profitability and dividends over several decades. Schroders has achieved this trick. Looking back over the last five years, the group’s operating profit margin has averaged 26% and returns on equity have averaged nearly 16%. Those are impressive figures, in my view.

As an asset manager, Schroders makes money from fees rather than interest rates. In today’s world of ultra-low interest rates, I think this makes the firm a much better choice than the big FTSE 100 banks for income investors.

Looking ahead, the company is continuing to focus on its core investment management business while looking for related new opportunities. One recent example is a wealth management joint venture with Lloyds Banking Group, named Schroders Personal Wealth.

It’s too soon to say how successful this venture will be, but I think it should help Schroders to win new business without requiring significant investment.

How to buy this FTSE 100 income stock

There’s one thing I think you need to know before you buy this share. Unusually, Schroders has two classes of stock. The main FTSE 100 stock has the ticker code SDR. This carries voting rights but has a higher share price than the Schroders (LSE: SDRC) shares, which don’t have voting rights.

Holders of both classes of share receive the same dividend. At the time of writing, this means that the SDR stock offers a yield of 4.1%, while the SDRC shares yield around 5.9%.

In my view, voting rights are irrelevant here. As a small private shareholder, you’ll never have any influence, given the size of the family’s shareholding. I’d always buy the SDRC shares to benefit from the extra yield.

I think Schroders looks good value at current levels, so I’d rate the shares as a long-term buy.

Dividend stocks should generate a rising income over time, as most companies endeavour to increase their payments year after year. Better still, it’s a passive income, which means you don’t have to do anything to earn it. FTSE 100 dividend stocks like these three could even help you retire early.

Pharmaceutical giant GlaxoSmithKline (LSE: GSK) has been a FTSE 100 dividend hero for years, and remains a top income stock today. While investors have been disappointed by management’s decision to freeze the payout at 80p a share for the last few years, it’s always seemed a sensible move to me. It allows the company to pump more money into its drugs pipeline, to build future revenues.

I’d buy this FTSE 100 dividend stock today

Investors can hardly complain, given the stock currently yields 5.47%. That’s a terrific income, especially with the base interest rate at 0.01%. It’ll look even better if we get negative rates. Cover is reasonable, at 1.5 times earnings.

Better still, the Glaxo share price is relatively cheap right now, trading at 11.62 times earnings. It has been drifting downwards lately, and trades around 12% lower than six months ago. This looks like one of the most compelling FTSE 100 dividend stocks today.

Most FTSE 100 dividend income investors will already have Glaxo on their radar, but some may have overlooked another top stock, fund manager Schroders (LSE: SDR). It currently yields 4.05%, and cover is better here at 1.7 times earnings.

Asset managers are often seen as a geared play on the stock market and, inevitably, the Schroders share price fell in the March crash. It has recovered strongly though and, in contrast to Glaxo, is up 12% in the last six months.

With global central bankers effectively backstopping share prices, the risk is greatly reduced. You can still buy it at a discounted valuation of 13.95 times earnings. Schroders has a great long-term pedigree, and looks like another tempting FTSE 100 dividend stock for those seeking rising passive income.

This rising passive income could be yours

Plumbing and heating products distributor Ferguson (LSE: FERG) is a play on the US economy, as it generates more than 90% of its revenues from the States. However, investors should not overlook its income capabilities as well.

Ferguson suspended its dividend earlier this year but has now restored its payout after trading picked up. Revenues fell by just 0.9% to $21.8bn in the year to 31 July, with pre-tax profit down 4.8% to $1.3bn. These figures look assuring given today’s uncertainties. 

This FTSE 100 dividend stock may only yield 2.6%, but the payout is handsomely covered 2.7 times, giving scope for progression. The Ferguson share price is more expensive, at 20.2 times earnings. Maybe start with Glaxo and Schroders, and keep Ferguson on your watch list.

Of course, dividends aren’t guaranteed, as this year’s events have shown. But many companies have maintained their payouts or have already restarted dividend payments. Today I want to look at three FTSE 100 dividend stocks I’d buy for a regular income.

Long-term growth from healthcare

There aren’t many certainties in the world. But I think we can be sure that demand for modern healthcare will continue to grow for the foreseeable future. My main healthcare investment is GlaxoSmithKline (LSE: GSK), the FTSE 100 pharmaceutical and consumer health group.

Glaxo is a popular dividend stock, but in recent years performance has been held back by the declining sales of former blockbusters that have lost patent protection. One big example of this is asthma medicine Advair. More recently, vaccine sales have fallen as the Covid-19 pandemic has restricted non-emergency healthcare activity.

However, I expect the headwinds from the pandemic will soon start to reverse. Looking further ahead, GSK has a number of new products that should support medium-term growth. I also expect the planned separation of the group’s consumer business (which owns brands such as Sensodyne) to improve performance.

At current levels, Glaxo stock offers a dividend yield of 5.2%. I see this as a good level to buy for long-term investors.

A family-focused dividend stock

FTSE 100 asset manager Schroders (LSE: SDR) (LSE: SDRC) — which manages more than $500bn of investor assets — might not seem like a family firm. But Schroders’ founding family still has a controlling stake in this 216-year old firm.

I think this family ownership is reflected in the conservative, long-term strategy employed by the group.

For income investors, investing in family firms can make sense. The firm’s controlling shareholders won’t want to lose what might be their main source of income. In my experience, dividends paid by family firms are often more affordable and sustainable than at comparable firms with no long-term ownership.

I see Schroders as one of the best dividend stocks in the FTSE 100. The shareholder payout hasn’t been cut for more than 30 years. And if you buy the non-voting Schroders (LSE: SDRC) class of shares today, you can look forward to a 5.4% dividend yield.

A sinful 8% dividend yield

Tobacco stocks divide opinion like few others. But the reality is that in financial terms, selling cigarettes is still a very large and profitable business. As I write, FTSE 100 stock British American Tobacco (LSE: BATS) offers a well-supported dividend yield of 8.5%.

There are very few other companies that can offer such strong cash flows for shareholder returns. But tobacco stocks are out of favour at the moment. That’s left BATS trading on a modest valuation of around eight times earnings.

Owning this dividend stock isn’t without risk. Regulations on tobacco sales could change in the future. The decline in smoking rates could accelerate. And BATS’ large debt pile could cause problems for the firm.

However, I suspect that industry leaders like this one will be able to manage these problems and continue to reward shareholders. I rate the stock as a dividend buy.

This dividend hasn’t been cut for 32 years

In a year filled with brutal dividend cuts, FTSE 100 investment manager Schroders (LSE: SDR) stands out as a reliable payer. This family-controlled firm hasn’t cut its dividend since at least 1988 — the earliest I could find records.

As an asset manager, Schroders profits this year have been hit by the stock market crash. But the impact so far has been fairly modest. Pre-tax profits for the first half of the year fell 12% to £280.1m. Earnings for the period were 15% lower, at 78.7p per share.

In a six-month period when we’ve seen a major stock market crash and the real economy struggle, I don’t think this is a bad result. Indeed, it suggests to me Schroders’ fund managers take a long-term focus and enjoy a high level of client support during difficult times.

A stock market crash buy

This long-term, conservative approach is reflected in Schroders dividend. Analysts expect the firm’s annual payout of 114p per share to remain unchanged this year. Based on the latest earnings forecasts, this payout should be covered around 1.5 times by earnings. Cover is normally higher than this but, in a difficult year, I think this gives a comfortable margin of safety.

Schroders stock doesn’t look expensive to me either. Buyers of the non-voting Schroders (LSE: SDRC) shares can collect a 5.5% dividend yield at current levels. In my view this is one of the safest payouts in the FTSE 100. This is one UK share I’d be happy to buy today and hold forever.

Buy when everyone is selling?

The automotive sector has been hit hard by lockdowns and factory closures this year. But early indications are that car sales are bouncing back quite well, helped by reluctance to use public transport and necessary social distancing measures.

One company I think could be a genuine stock market crash bargain today is Inchcape (LSE: INCH). Although this group operates some UK dealerships, its main business is as a global automotive distributor. This means Inchcape partners with car manufacturers in a given market to take responsibility for local marketing, distribution, dealer management, and aftersales support. All the manufacturer does is supply the cars.

Inchcape’s share price has crashed this year, falling 35% to around 460p. Broker forecasts suggest revenue will drop by around 25% in 2020, while profits will fall by around 60%. However, Inchcape is expected to remain profitable and a solid recovery is pencilled in for 2021.

This business has a long track record of reliable performance. Historically, it’s generated a return on capital employed of about 15% per year — a respectable figure. The group’s global footprint means it should be able to benefit from regional recoveries, rather than being dependent on just the UK market.

Broker forecasts put the stock on a 2021 forecast price/earnings ratio of just 9.5, with an expected dividend yield for next year of almost 5%. I see Inchcape as a good UK share to buy today for a long-term portfolio.