When buying stocks, I think it pays to remember one truism. The past does not always reflect what is in store in the future. A recent example is the pandemic and its impact on stock markets. Companies’ best laid plans were upended, and their stock prices tanked. Some of them are yet to return to pre-pandemic prices. And these include some of the biggest FTSE 100 names.
This poses a challenge to me when I set out to earn a reliable passive income for a long time. But it also gives me an opportunity to carefully consider stocks that are most likely to earn me such an income. These include both stocks that did not cut their dividends during the pandemic and those that quickly returned to paying them after a brief stop during that time.
Utilities offer good passive income
Utilities are my preferred FTSE 100 stocks as far as dividend continuity goes. I have a number of utilities to choose from among the index’s constituents, like National Grid, SSE, Severn Trent and United Utilities. And their dividend yields are also pretty decent, ranging between 3.5% and 5.2%. Not that all of them have an above-average dividend yield (the average is 3.4% at present).
SSE’s my FTSE 100 utility pick
Among these, I like SSE the most, which is why I bought it as well. It is no coincidence of course that it also has the highest yield (5.2%) among them. But I also like the fact that it is a big green energy producer, which is the industry of the future as is becoming increasingly clear. I am a bit disappointed by its lacklustre price performance in the recent past. For that reason, I am looking out for any fundamental changes to the company that could affect its prospects, and hence my dividends. But for now, everything appears to be in order. I would still buy it.
Healthcare stocks’ dividend continuity
I also like healthcare stocks, like AstraZeneca and Hikma Pharmaceuticals. Their dividend yields are far from the highest at 2.4% and 1.9%, respectively. But they have earned investors passive income for a long time, which counts for something, I feel. They have grown investor capital significantly over the past years. Because of this, their yields look much better over the years too. So, for instance, if I had invested in them 10 years ago, my current dividend yield from AstraZeneca would be 6.4% and that from Hikma Pharmaceuticals 4.3%.
AstraZeneca is my preferred stock
Between the two, I have a preference for AstraZeneca, and bought the stock a while ago. I like the company’s financial growth and more recently, of course, it has become a household name with the development of its Covid-19 vaccine.
But I am watching out for its profits, which do not always consistently rise. In fact, they could be a threat to its share price at present, which is trading at an eye watering price-to-earnings (P/E) ratio of 95 times. This might just cool down with its next financial update, so I am not particularly concerned. I would probably buy more of the stock, going by its good returns over the years.
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Manika Premsingh owns AstraZeneca and SSE. The Motley Fool UK has recommended Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
