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A large portion of my portfolio is made up of dividend stocks. Inflation has skyrocketed this year. To guard against this, I've been looking to generate some passive income.
This is an approach I plan to follow through 2024. Although inflation seems likely to continue falling next year, I'm still interested in picking up income stocks. I will reinvest my dividends and, over time, I will see my pot grow.
With stock prices set to take a hit in 2023, I think there are a lot of undervalued companies right now.
If I have extra money, these two gems could be my next purchases.
lequal and general
I already own shares in a stalwart financial services company. Legal and general (LSE: LGEN). The stock is down just 5% in the last 12 months, meaning it is priced at just 241p. Since it's up almost 9% in the last month, I expect this form to continue into next year.
Of course, its dividend yield is a great attraction. A yield of 8% places it as one of the FTSE 100Those who pay the most. Its dividend has seen consistent growth over the last decade, which is another positive sign.
Before I continue, I should make it clear that dividends are never guaranteed. History has proven this, from the 2008 global financial crisis to the most recent pandemic. However, the dividend is covered roughly twice by earnings, which gives me some level of comfort.
It is also on track to complete a strategic plan next year that will have seen it return up to £5.9bn to shareholders in dividends. That's another encouraging sign.
Other than that, I like Legal & General because of its strong brand. The years ahead may be hectic. I want companies in my portfolio that have stood the test of time.
That said, with prospects bleak for the next few years, its share price may experience increased volatility. Its assets under management have fallen in recent times. This can continue.
However, I am a long-term investor. Legal & General is firmly on my radar.
HSBC
I also follow very closely HSBC (LSE:HSBA). The bank has had a strong 12 months, up 24%.
A profitability of 5.6% is slightly lower than that offered by Legal & General. That said, it's still comfortably above the Footsie average. It also seeks to reward shareholders. In 2023, share buybacks amounted to $7 billion.
Trading at five times earnings, it looks cheap. I am also attracted to action because of its international presence. This can give you an edge over your competitors.
The biggest risk you will face is your exposure to China. The country's real estate marketing has been declining lately and HSBC has invested heavily in it. The current geopolitical tensions in China are also a cause for concern.
However, I also see its exposure to Asia as positive. In the coming years, the region is expected to continue its impressive growth. Research predicts that Asia's commercial banking sector will grow almost 20% annually until 2031.
I am looking to acquire both stocks in the coming weeks. I am interested in diversifying my portfolio. Therefore, since I already own Legal & General, I will buy HSBC shares first.
