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I always prefer companies that pay out relatively small but growing amounts of passive income each year compared to those that offer gigantic but stagnant dividends.
My reasoning is quite simple. Steadily increasing cash returns tend to be indicative of a business in poor health. Those in the latter camp tend to stay afloat.
British
FTSE 250 firm British (LSE: BVIC) is one of three stocks I will consider buying when funds are available. While not completely immune to larger economic swings, the beverage industry tends to be more resilient, as its low-priced items tend to be purchased out of habit.
In fact, this degree of revenue predictability has allowed the owner of brands such as Tango and Robinsons continue to return increasing amounts of money to their investors almost every year.
In 2024, the expected return is currently 3.4%, higher than that offered by the index as a whole.
Despite all this, a potential risk is that consumers, increasingly concerned about their health, begin to move away from carbonated or sugary drinks. The reduction in sales could effectively end that streak of annual increases. At best, it could hamper the magnitude of future increases.
With this in mind, it seems prudent to spread my money across other stocks as well.
coat
Some of that diversification could come from another FTSE stock that has strong dividend credentials, namely the heat treatment process provider. coat (LSE: CHILD).
To be clear, a company that specializes in manufacturing metal “stronger, more durable and more resistant to corrosion” is not something that is likely to grab the headlines.
However, as far as dividends go, it's just the kind of thing I'm looking for. We're talking years and years of raises, not to mention the occasional special payout along the way.
Currently, this trend has every chance of continuing. With a forecast return not dissimilar to Britvic, Bodycote's cash returns also appear to be more than double covered by projected earnings.
On the other hand, trade here is arguably more cyclical, with demand from sectors such as energy, automotive and aerospace dictated by general economic sentiment.
Historically, Bodycote has proven to be solid during those periods. But the future will not necessarily reflect the past.
So what else could you buy (when funds allow) to help soften any blow?
Safe store
Last on my list is the storage provider Safe store (LSE: INSURANCE). Again, Safestore operates in a completely different space to the other two mentioned here. This could lead to a less volatile portfolio, at least in theory. As an investor, I also love the simplicity and predictability of a business plan that involves charging people to put away their clutter.
On the other hand, it is no secret that everything related to property has been stagnant for some time. Consequently, Safestore's share price has fallen 11% in the last 12 months. There is a chance it could fall further if the Bank of England continues to delay its first interest rate cut.
However, as long as I get paid to be patient, I'm not likely to worry about any drop in the value of my stake. A 3.6% yield seems like a decent trade-off, especially since Safestore is also gaining a reputation as a dividend producer par excellence.
And if the UK market picks up again, there could be a nice capital gain too.
