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How can we find the best UK stocks to buy for long-term passive income? Opting for companies with good dividend records is one way. And it may be even better if investors avoid them like the plague and now they are cheap.
Bank stocks look to meet those requirements by the end of 2023. Regardless, they are some of my top long-term buys and I will continue to buy them.
contrary
At times like this, I think of a quote from one of my top investors of all time.
Sir John Templeton once 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 made a ton of money doing exactly that.
And if I saw an action like Barclays with a price-to-earnings (P/E) ratio of less than five, I think it would be filling its boots.
Santander
But I’m not talking about Barclays, the cheapest British bank in that regard today. Is Santander Bank (LSE: BNC).
Santander doesn’t have that low of a P/E, but at 5.8, it’s still way down. A dividend yield of 4.4% is expected for this year, but brokers’ forecasts place it above 6% for 2024.
For today, I’m sticking with the 5.3% drop for 2024, since we are so close to the end of this year.
Dear of past dividends
Banco Santander was once one of the best options for long-term dividend investors. It used to pay more than today.
And it had a share plan, so we could purchase more shares instead of cash.
But he took it too far and created too much stock dilution. The current boss, Ana Botín, led the bank to a more standard policy.
I think that makes it more sustainable now and better for long-term passive income investors.
And if?
So what could a 5.3% dividend yield do for me in the coming decades?
To earn my passive income of £1,000 a month, I would need a pot of around £226,000. That’s 77,000 shares at the current price. I can’t let go that much now, for sure.
So it would have to be a long-term capitalization. What if you could deposit half your stocks and Shares ISA allocation each year into Santander? It’s £10,000 a year and I could reach my goal in 15 years.
With feet on the ground
Actually, if the dividend increases as expected, I expect the stock to increase as well. Higher dividends are good, but a higher share price would mean fewer new shares for the same cash each year.
I think bank stocks could face an even tougher few years. And I’ll only believe in those future dividends when I see them.
So this is not a prediction. It’s just a ‘what if?’ That means everything remains the same.
But it inspires me to invest as much as I can each year into my stocks and Shares ISA. And, right now, banks are my first choice when I have extra money.
