Dividend shares are a great way to boost passive income, in my view.
If I had £2K right now, I could buy 442 shares in top dividend paying stocks Reckitt (LSE: RKT) and Legal & General (LGEN).
The first thousand would buy me 17 Reckitt shares at £56.82 per share. The other thousand pounds would buy me a whopping 425 shares in Legal & General at £2.35 per share.
I’ll break down my investment case below!
Reckitt
The multinational consumer goods business has a wide reach and excellent brand power. Some of its best known include Durex, Clearasil, Dettol, Gaviscon, and more.
Reckitt shares have been held back by economic volatility. They’re down a miniscule 1% from 5,740p at this time last year, to current levels of 5,682p. This is good news for potential investors like me looking to buy shares.
The firm’s investor returns record is enviable. This is underpinned by a shrewd business model which involves high cash generation, as well as aggressive organic and acquisition-led growth.
At present, a dividend yield of 3.5% is attractive, especially considering the size, profile, record, and brand power of the business. However, I’m conscious dividends are never guaranteed, and past performance is not an indicator of the future.
The obvious risk for me is current turbulence, namely rising costs and shipping issues. As consumers have less money to spend, they may turn to non-branded alternatives, hurting Reckitt’s performance and payouts.
In my opinion, Reckitt shares, as well as its performance and returns should increase once volatility dissipates.
Legal & General
The financial services provider best known for life insurance products has been a passive income stalwart in recent times.
Legal & General shares have been hurt by economic turbulence too. They’re down 7% over a 12-month period, from 254p at this time last year to current levels of 235p.
However, the recent drop means that the shares look very good value for money to me on a price-to-earnings ratio of seven.
Plus, a dividend yield of 8.5% is much higher than the FTSE 100 average of 3.8%. In addition to this, since 2016, the firm has paid out £7.7bn in dividends. Shareholder value seems to be high on the priority list for the business, which is pleasing to see.
From a risk perspective, the dividend cover is a bit tight for my liking. In addition to this, continued turbulence and even a full-blown recession could hurt Legal & General’s performance, which underpins its returns policy. I’ll keep an eye on events on this front.
An ageing demographic and reduced volatility should boost Legal & General’s performance and shares in the longer term.
I don’t have a spare couple of thousand lying around at present. However, both stocks are on my radar and I’ll be buying some shares when I can.
