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The secret to Warren Buffett's success in creating wealth is his ability to focus on the long term. And it's equally important for investors looking to earn passive income.
According to Buffett, the most important thing in the long term is to invest in the right companies. With that in mind, here are three that I think will probably prove to last.
Unilever
Buffett has been very successful with Coca Cola and this has been based on constant growth over a long period of time. Believe Unilever (LSE:ULVR) is similar in several ways.
The company operates in an industry where demand is relatively stable. And it has an important competitive position, with some of the leading brands in various categories.
However, maintaining this position is not easy. There is little to stop consumers switching to cheaper alternatives and, even with Unilever brands, this is a constant risk.
Despite this, the company has managed to increase its dividends consistently in the past. And I hope this continues in the future.
Greggs
Believe Greggs (LSE:GRG) is hugely underrated from a passive income perspective. The business model is relatively simple, but very effective.
It's so effective that the company is currently struggling to keep up with demand. As a result, it is opening more stores and expanding its manufacturing capacity.
A potential risk is the emergence of GLP-1 drugs. These have been popping up in the US, but if they make it to this side of the Atlantic, demand for sausage rolls could take a hit.
However, the combination of low prices and a consistent product is powerful. I expect Greggs to continue generating more cash in the future and returning it to shareholders.
Barclays
Barclays (LSE:BARC) is a company in transition at the moment. But nonetheless, I think it's an interesting passive income opportunity that investors should consider.
Importantly, the company announced in February that it plans to maintain its dividend while restructuring its operations into five new divisions. And the current yield is just over 4%.
The biggest risk is probably that interest rates remain high. This would keep investment banking activity subdued and increase the danger of loan defaults.
While there will inevitably be some ups and downs, I expect Barclays to do well over time. And I believe this will generate substantial returns for shareholders in the form of dividends.
UK stocks
Overall, UK stocks are currently trading at a discount to their US counterparts. I think this means there are great opportunities for investors looking to earn a second income.
What matters for passive income is how much cash a business will generate over the long term. And that comes down to your ability to remain competitive over time.
With Unilever, Greggs and Barclays, I think all three have good prospects. This puts them on my list of stocks that passive income investors should consider buying.
