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Investing for passive income requires a long-term mindset. Dividend stock returns start small, grow, and eventually add up to something substantial.
All of that takes time. But that means it’s important to start as soon as possible, if the right opportunities are available.
My goal is to build an investment portfolio that can generate passive income for me for life. With that in mind, here are two stocks that are on my list to buy in February.
right movement
My first pick for passive income may seem like an odd choice. At 1.3%, right movement (LSE:RMV) doesn’t exactly have an attractive dividend yield.
However, the company’s dividend is growing rapidly. Over the past 10 years, Rightmove’s dividend has increased by an average of 15% per year.
If that continues, after 25 years, I’ll be earning 45% a year on my initial share. In other words, a £1,000 investment today could be paying you £450 per year in passive income.
However, it is important to note that the company’s dividend growth has not been linear. In 2020 Rightmove cut its dividend completely and there is always a risk of this happening again.
A weak UK property market, like the one we are experiencing right now with the fall in house prices since last August, could make that happen. But I see this as an opportunity.
I think Rightmove has a strong balance sheet, great cash generation metrics, and a buyback program that can help propel the stock going forward. That’s why I’m looking to buy it this month.
Citigroup
Todd Combs (a Berkshire Hathaway investment manager) recently gave an interview in which he discussed how Warren Buffett finds stocks to buy. that leads me to Citigroup (NYSE:C).
According to Combs, three things are important. One is a forward-looking price-earnings (P/E) ratio of less than 15, another is a company that will be stronger five years from now, the third is a company that can increase earnings by 7%.
I think Citigroup checks the boxes here. Let’s start with the easy part: the stock is currently trading at a P/E ratio of just under 8.
Will the business be in a better position five years from now? I think it will.
Citigroup is currently restructuring its operations. That process may take some time and there is a risk that it will be expensive in the short term, but I expect it to be complete by 2028.
The end result should be a stronger business than the current one. The company seeks to become more efficient by focusing on its core strengths and eliminating peripheral operations.
Ultimately, I believe the business can achieve a 7% annual return. Citigroup currently achieves a return on equity of 8%, and I think this will only increase as the company becomes more efficient.
Citigroup stock might be passé right now. But I’m looking to buy the stock for its 4% dividend yield and opportunities for future business enhancements.
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