Buying dividend shares is one of my favourite passive income ideas. I can earn money from the efforts of successful businesses plying their trades.
Here are five UK shares I would consider buying for my portfolio today, thanks to their passive income potential.
FTSE 100 financial services firms
Investment manager M&G currently yields 8.6%. The business of investment management works by attracting funds from clients and investing it on their behalf. Commissions can be big, which is good for profits. But performance matters: if clients think their funds will earn more elsewhere, they may withdraw them. That is a risk to M&G’s profits. Last year it saw a net inflow of funds. I think its well-known brand name can keep helping it attract customers, which could be good for revenue growth in future.
Another FTSE 100 financial services provider on my list of passive income ideas is Legal & General. I have held this share before and would consider buying it for my portfolio at the moment. The company continued to pay dividends during the pandemic when rivals like Aviva cancelled their payouts. Currently the dividend yield is 6.5%. The firm has set out plans to raise its dividend in coming years. Dividends are never guaranteed and Legal & General faces risks such as poor underwriting decisions hurting its profits. But with a well-known brand, large customer base and proven expertise in its core markets, I would consider it for my portfolio.
Consumer goods champions
I would also happily buy shares in Unilever, the blue-chip consumer goods company.
It draws on over a century of experience making products like laundry detergent and shampoo to sell around the world. The global exposure can help reduce the impact on profits of falling sales in some markets. Developing premium brands such as Comfort allows the company to make chunky profits. Last year, for example, post-tax profits were over £100m a week! Currently the Unilever stock yield is 4.3%.
Another consumer goods company I would consider adding to my portfolio is pork producer Cranswick. With a yield of 2.1%, my angle here is different. I would be buying it partly for the current payout but also in the hope of future dividend raises. Last year saw the dividend grow 16%, following an 8% rise the prior year. Dividends are not guaranteed and Cranswick faces risks such as a shortage of abattoir workers pushing up costs. But the well-run company seems to have found a profitable niche. It has grown its dividend annually for over 30 years. I think buying it for my portfolio could boost my passive income.
Double-digit passive income potential
I would also consider buying shares in the Income & Growth venture capital trust for my portfolio.
By investing in early stage companies, the trust hopes to benefit from their success. That means that if the trust managers make bad investment decisions, it could hurt the profits from which it pays a dividend. But the opposite is also true: successful choices on their part could boost the dividend. The shares offer a double-digit percentage yield of 10%. I would consider buying Income and Growth today and hoping it lives up to its name once it is in my portfolio!
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Christopher Ruane owns M&G and Unilever. The Motley Fool UK has recommended Unilever. 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.