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Passive income stocks are my favorite. As Warren Buffett once said: “If you don't find a way to make money while you sleep, you'll work yourself to death.“That's why I think buying dividend stocks makes so much sense.
With very little work, stocks that pay substantial dividends can generate significant wealth for investors over time.
Here are two I would buy today if I had the cash.
Schroders
Earnings season is in full swing. However, Schroders (LSE:SDR) shareholders would not have been too happy to see the stock drop 8% following the release of its half-year results. FTSE 100 Index Companies missed profit forecasts.
That means the stock has lost 16.2% of its value by 2024. Over the past 12 months, it is down 20.8%.
But with the falling share price comes a higher yield. The stock now pays 6%, easily beating the FTSE 100 average (3.6%). In the first half, its interim dividend was unchanged from last year at 6.5p per share.
Unstable market conditions have been the main factor weighing down the share price over the past two years. Pressures such as high inflation and high interest rates have shaken the assets under management of the asset and wealth manager.
In a recent interview, CEO Peter Harrison described trading conditions during the first few months of the year as “severe“.
But I expect stocks to recover as rate cuts continue over the next few years. That should provide a much-welcome boost to market confidence. Today, its shares look decently valued, trading at 12.8 times forward earnings.
Taylor Wimpey
Unlike Schroders, Taylor Wimpey (LSE:TW.) performed slightly better after its latest investor update. It raised its full-year housing completions forecast, another sign that the housing market is recovering after a difficult period.
The stock also yields 6%. And with a strong balance sheet, including £548m in net cash, the housebuilder is well positioned to continue rewarding shareholders.
There are plenty of signs that the company could excel in the coming years. The current housing shortage in the UK has led the recently elected Labour government to commit to building 1.5 million new homes over the next five years.
That said, the next few months could be volatile. While we have seen our first rate cut, interest rates remain high. And while it is anticipated that we could see further cuts this year, any sign of a delay could hurt stock prices.
But for long-term investors, I think Taylor Wimpey is a stock to consider. Based on forecasts, it is currently trading at an attractive 13 times forward earnings to 2026.
£20,000 invested
With an average yield of 6%, if I invest £20,000 in these two stocks, I will earn £1,200 a year in passive income. After 30 years, I would have earned £36,000.
However, if I had reinvested my dividends during that time instead of withdrawing them, I would have earned £100,452, including £6,997 in passive income by year 30.
Diversification is key. So with £20,000, I would spread it across five to ten stocks. However, these two would be companies I would definitely consider buying.
