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Investment guru Warren Buffett once said: “If you’re not thinking about owning stocks for ten years, don’t even think about owning them for ten minutes.”And that’s my minimum holding period when I buy stocks for passive income.
For those with a few decades ahead of them, the opportunities to accumulate a sizable jackpot can be quite eye-opening.
There are many great dividend yields to choose from. But not all great returns are equally good. No, I look for stocks that have a history of paying cash over long periods.
<h2 class="wp-block-heading" id="h-financial-stocks“>Financial actions
That’s why financial stocks are my long-term favorites.
They can have their bad streaks. I’m sure I don’t need to say that to anyone who lived through the 2008 financial crisis.
And some, like insurance stocks, can be cyclical. I’m looking at one of those today, Phoenix group holdings (LSE: PHNX).
The share price has had a tough time, falling 25% in the last five years.
Buy when they are low?
Should we buy insurance stocks when the entire sector is under pressure? Business doesn’t do well when people’s pockets are tight and inflation and interest rates are causing so much pain.
But I want to quote another of my all-time favorite investors, Sir John Templeton. He made his fortune by going against the crowd.
He said: “It takes patience, discipline and courage to follow the opposite path to investment success. Buy when others sell discouraged, sell when others buy eagerly.”
He is widely considered one of the best stock pickers of all time.
Phoenix Rating
The drop in Phoenix’s share price has pushed the expected dividend yield above 11%. It looks like the company will post a loss this year, so that may not happen.
But brokers’ forecasts show a quick return to profits. And they do see that the dividends will remain there.
They could be wrong, the dividend could decrease, and the share price could fall. But just think of the passive income you could generate if you could earn returns like these and maintain them.
And if?
What might you expect, based on the long-term returns of an 11% dividend?
To reach my £1,000 a month, I would need around £110,000 worth of Phoenix Group shares. That would pay £12,100 a year.
Suppose I don’t have much to spare right now: I checked all my pockets and I don’t have it. But, if you could put a single allocation of stocks and shares ISA into Phoenix, you could buy 4,300 shares.
All I would have to do then would be reinvest my dividends each year and I could reach my goal in just 17 years.
With feet on the ground
Would you put that much into Phoenix stock? I would, but only as part of a diversified portfolio. Diversification is an essential part of my strategy.
Now I am sure that things will not remain the same. I also expect financial stocks to face more ups and downs and more pain in the future.
But this ‘what if?’ It inspires me to work harder to achieve my passive income goals.
