3 shares to consider for long-term passive income
Here are three I think it is worth considering as one tries to build passive income streams for the long term.
Henderson Far East Income
To start with is a high-yield one. In fact, the 10.8% dividend yield of Henderson Far East Income is something of a red flag. Often such a high yield can suggest the City is nervous about the prospect of dividend cuts.
That is understandable, as the fund is focused on the Far East and owns stakes in companies that could suffer from a weak global economy or tariff disputes, such as its largest holding Evergreen Marine Corp Taiwan.
But its carefully chosen portfolio of dozens of companies also exposes the fund to what I see as some compelling growth stories. It has a proven record of generating sizeable cash flows from its portfolio of Asia Pacific-exposed investments.
British American Tobacco
While Henderson Far East has an impressive recent record of dividend growth since its launch 19 years ago, an even longer run of annual dividend per share growth can be seen at British American Tobacco (LSE: BATS). It has raised the payout per share each year this century.
Management plans to continue that trend and I think it will work hard to do so, as dividends are central to the investment case. Declining cigarette use means that British American, like other tobacco shares, are not seen as growth stories even as they develop non-cigarette product lines.
Will British American keep paying out the sort of dividends that has earned it a place in many passive income portfolios? It is easy to focus on the risks – the company's debt is another, besides declining cigarette use – but I do see some strengths to the business too.
It is massively cash generative and has a stable of premium brands such as Dunhill and Pall Mall. That, along with the addictive nature of smoking, gives it significant pricing power.
Dunelm
Homewares retailer Dunelm (LSE: DNLM) has a 3.6% dividend yield. That means someone investing £100 today will hopefully earn £3.60 in dividends annually.
That yield is already fairly attractive, in my view. But it only tells part of the story, as it excludes special dividends. Dunelm sometimes uses such dividends to distribute spare cash. That can be good news for passive income hunters.
Last year, for example, its total dividend per share came in at 78.5p. That is around 6.5% of the current share price – an even more attractive yield than the 3.6% yield I mentioned (from ordinary dividends alone).
The company benefits from an extensive network of stores and strong digital presence that now accounts for 42% of total sales. Lots of unique products help set it apart both online and offline.
At 16 times earnings, the share price does not strike me as cheap but I do think Dunelm is a high-quality company with a proven business model. Global shipping rates remain volatile, a risk to its profit margins.
While that remains a risk, Dunelm reckons its 'strong commercial and operational grip' means gross margin for its most recent financial year will actually show improvement.
The post 3 shares to consider for long-term passive income appeared first on The Motley Fool UK.
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C Ruane has positions in Henderson Far East Income. The Motley Fool UK has recommended British American Tobacco P.l.c. 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.
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