Image source: Getty Images
The period between Christmas and New Year's usually gives more time to think and plan for the coming year. I'm definitely using some of this time to think about passive income ideas within my stock portfolio. When talking about interest rate cuts, I want to make sure my money is working as hard as possible.
Here are some ideas I'm thinking about.
Use the full year results to my advantage
A good portion of companies report last year's full-year results in the first quarter. Typically, a dividend is declared upon publication of the report, based on the previous year's earnings. Shortly after, the shares become ex-dividend, meaning I must own the shares before then to be eligible to receive the money. Finally, the dividend payment date occurs later.
This means I can start the year off strong by identifying companies that I think should report solid earnings. By doing so, you would expect a generous dividend to be paid. This is especially true if the company in question has a good track record of paying income.
As an example, NatWest Group should report results in early February. Given the increase in net interest income enjoyed throughout 2023 due to high interest rates, you would expect the bank to deliver a large dividend. The company's current dividend yield is 7.08%.
Getting ahead of the curve
Another way to start 2024 off right is to buy dividend stocks that have the potential to outperform later in the year. If I can find stocks that I think are currently flying under the radar, it could put me in a strong position for the rest of the year.
For example, IG Group It currently has a dividend yield of 6.07%. The company has grown its revenue in each of the last five years. However, the reporting period ends at the end of May.
You could wait until the end of the year before buying the stock for income. But this might mean that I can't keep the stock price at a good level right now. The stock is down 5% over the past year and I think this does not reflect how well the business could perform in the future. So my strategy would be to buy it soon, aiming for share price appreciation followed by a healthy dividend payout when the full-year results are released.
Ensure everything goes as planned
A risk to my idea is that income payments will be based on performance in 2023. So while this could be helpful for dividends over the next half year, the focus will then be on 2024.
If the stock I buy underperforms, future dividends may be reduced. Of course, no one can predict the future. But it's worth noting that I don't want to invest in a company that appears to have benefited from an unusually good year. If this performance cannot be replicated, you could be disappointed in the future.
To help ensure this doesn't materially impact me, I want to diversify my passive income stocks.
