I think dividend stocks are a great way to build a passive income stream for my future. But I like to choose such stocks carefully. Because not all stocks provide me with the opportunity to earn predictable dividends. When I establish a second source of income, it helps to understand my future income. This helps me plan spending and saving better.
Have a set FTSE 100 However, a fairly reliable stock.I’m talking about utility stocks, such as State Grid, SSE, Severn Trent, with United Utilities. At least for the past ten years, each of them has been paying dividends. Their dividend yield has not fluctuated much either.
But besides the predictability of dividends, I also like these stocks for three other reasons.
Stocks with higher dividend yields on the FTSE 100 Index
The first is their level of dividend yield. Their dividend yield may not be the highest, but it is also not the lowest. Each of them has a yield higher than the 3.4% average of the FTSE 100 Index. Among them, Severn Trent with the lowest yield is still 3.8%. The highest is 5.4% provided by State Grid.
Secondly, these dividend yields also ensure that even in the current high inflation environment, I can get a positive real return. In September, the UK’s inflation rate based on consumer prices increased by more than 3% year-on-year for the second consecutive month. Although the annual inflation data may be lower because it is the average price increase for all 12 months, the current higher number does highlight the risk of price increases. All four utilities considered here provide higher yields.
Utilities stocks are a safe bet for economic slowdown
Third, in the case of economic slowdown, I hope that my money will be invested in stocks whose value will not plummet to almost zero. Even in times of economic downturn, the demand for public utility services is relatively elastic, and this may happen. Although the British economy is recovering, its pace is still quite slow. In August, its month-on-month increase was only 0.4%, which was disappointing because it was the first full month since the blockade was lifted.
High inflation is another reason why economic growth is still weak.FTSE 100 index companies are facing Cost pressureThis can be reflected in the slow growth of their financial and macro levels. The withdrawal of supportive policies such as stamp duty holidays and low interest rates may affect the real estate market and overall credit demand, which may also further slow down the recovery.
Cons and my takeaway
With this uncertainty, I am very happy to invest in safe utility stocks that will continue to bring me dividends even at this time. Of course, the other side is that their capital growth has almost never been as strong as cyclical stocks such as metals or retailers, which have really risen in the past year.But then again, as long as I do Some capital gains With the development of public utilities, relatively high and reliable dividends have helped me a lot.
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Manika Premsinger There is no position in any of the above-mentioned shares. Motley Fool UK recommended National Grid. The views expressed by the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we made in subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a variety of different insights, We are better investors.