Amidst the constant unpredictability of politics, changing prime ministers, and budget reforms, it seems difficult to plan for my financial future. However, while stocks are constantly fluctuating during this economic turmoil, I can make my finances more predictable by investing in stocks that generate passive income. These can be found by looking at strong and steady companies.
If I had the spare cash, one such company I like the look of for my portfolio is RELX (LSE: REL).
What RELX does
RELX is a massive company, sporting a market cap of £44.8bn and serving customers in over 180 countries. It is probably one of the largest companies you’ve never heard of.
Taking a glance at its website, you’ll see that RELX is a “provider of information-based analytics and decision tools for professional and business customers”. Acquisitions are a key part of its growth, with six companies purchased in 2022. One of the biggest brands under its wing is Lexis Nexis, which specialises in the detection and prevention of online fraud and money laundering.
Its shares have largely stayed flat in 2022, with a small decline of 2.62%, in line with the 2.27% decline of the FTSE 100 index.
What I like about RELX
RELX has experienced steady growth over the last few years. Year-on-year (YoY) revenue growth was an impressive 16.9% over the last quarter, whilst quarterly earnings grew 14.6% YoY. RELX has shown it can remain stable in a time when many other companies are struggling to do so.
RELX also has a strong dividend, with a yield of 2.2%. If I buy 1,000 shares at today’s share price of £23.01,, I can generate roughly £1,000 of annual passive income. With a dividend pay-out ratio of just under 70%, RELX should be able to continue supporting its dividend, even if economic conditions start to deteriorate growth.
RELX is also comfortably profitable, achieving a net income of £1.47bn in 2021.
RELX is currently sporting a price-to-earnings (P/E) ratio of 29. It is not cheap by any means. For context, the average P/E ratio for a FTSE All-Share company is 14, which is half the valuation of RELX. This might create downward pressure on its stock price in the near term if the economic outlook doesn’t improve.
However, I am not too concerned about this. RELX has plenty of positives to justify this premium, notably its growth, stability, and profitability. As an investor focused on long-term returns, these are the characteristics I’m looking for.
RELX is massive yet largely unknown. This is probably because it’s shown consistent stability over time and hasn’t been involved in any dramatic news. I believe this is a good sign and its ability to grow, even in today’s economic volatility, means the stock is perfectly positioned to deliver good returns and a dividend on top. Valuation concerns exist, but I have a long-term vision when making investing decisions. This is why I would buy shares of RELX today if I had the spare cash to do so.
Muhammad Cheema has no positions in any of the shares mentioned. The Motley Fool UK has recommended RELX. 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.
Motley Fool UK 2022