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As I look for passive income stocks to buy, there are still many great candidates on the market. FTSE 100.
Here are two that I currently have my eye on, especially since both will stop having dividends next month.
Passive Income Power
International distributor Bunzl (LSE: BNZL) is one of the most consistent stocks in the UK market when it comes to cash returns. We are talking year after year of consecutive increases in the total dividend.
Much of this is because it supplies the kinds of things that businesses always need. We're talking food packaging, cleaning chemicals and safety equipment.
While we can't automatically assume this form will continue, I would be very surprised if it doesn't. After all, the £12bn market capitalization company continued to increase payouts. during the pandemic!
In its latest update (September), the firm raised its forecast for adjusted operating profit in 2024 thanks to the positive impact of acquisitions and demand for own-brand products. In response, analysts JPMorgan increased its price target to just under 4,000 pence for the stock, citing growth potential in the North American market, particularly in the grocery and foodservice sectors.
All this seems positive to me.
Is it worth taking the risk?
On the negative side, Bunzl's dividend yield stands at 2.1%. A standard FTSE 100 tracking fund would do better.
We also know that brokers can sometimes be (very) wrong in their projections. That growth might not materialize, especially if the United States falls into a recession.
On the other hand, Bunzl shares have massively outperformed UK blue chips over the long term – the only time horizon that matters to a fool like me. Compounding that reasonable but not huge return each year would have boosted returns even further.
I'm going to think about this a bit more, especially since the valuation currently seems pretty complete. Fortunately, the stock doesn't go ex-dividend until mid-November.
Dividend Aristocrat
One way to increase my portfolio's average return would be to buy a portion of the tobacco giant. imperial marks (LSE: IMB). Like Bunzl, it has been a real money-making machine for investors over the years. The difference is that its dividend yield is much higher. As I write, this is 6.6%!
Now, cash distributions like this tend to come from companies that aren't seeing much growth. Given that smoking levels have been falling for decades, this is arguably true of Imperial.
Still, the company is doing its best to adapt to changing tastes and behaviors. For example, Imperial now expects 20% to 30% net income growth for its next-generation products (e.g. vaporizers) in FY24. This makes me suspect that this passive income stream seems pretty safe.
But for how long?
However, there are a couple of things I'm reflecting on.
The new(ish) UK government seems no less motivated to reduce smoking in the UK than the previous one. Several proposals, such as banning the sale of tobacco to anyone born after January 2009, could eventually become law. And Imperial will surely not be able to continue raising prices to a certain extent to mitigate the decline in tobacco consumption around the world.
Like Bunzl, I'll reapply the rule in a week or two. It goes ex-dividend on November 28.
