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3 stocks that could create lasting passive income

Passive income text with pin graph chart on business table
Image source: Getty Images

 The secret of Warren Buffett’s success in building wealth is an ability to focus on the long term. And it’s equally important for investors looking to earn passive income.

According to Buffett, what matters the most in the long run is being invested in the right companies. With that in mind, here are three that I think are likely to prove durable.

Unilever

Buffett has had a lot of success with Coca-Cola and this has been built on steady growth over a long period of time. I think Unilever (LSE:ULVR) is similar in a number of ways.

The company operates in an industry where demand is relatively stable. And it has an important competitive position, with some of the top brands in various categories.

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Maintaining this position isn’t easy, though. There’s not much stopping consumers switching to cheaper alternatives and, even with Unilever’s brands, this is a constant risk.

Despite this, the company has managed to increase its dividend consistently in the past. And I expect this to continue going forward.

Greggs

I think Greggs (LSE:GRG) is hugely underrated from a passive income perspective. The business model is relatively uncomplicated, but it’s highly effective.

It’s so effective that the company is currently struggling to keep up with demand. As a result, it’s opening more stores and expanding its manufacturing capacity.

One potential risk is the emergence of GLP-1 drugs. These have been showing up in the US, but if they make their way this side of the Atlantic, demand for sausage rolls could suffer.

The combination of low prices and a consistent product is a powerful one, though. I expect Greggs to keep generating more cash in the future and returning this to shareholders.

Barclays

Barclays (LSE:BARC) is a business in transition at the moment. But I nonetheless think it’s an interesting passive income opportunity for investors to consider.

Importantly, the company announced in February that it plans to maintain its dividend as it restructures its operations into five new divisions. And the current yield is just over 4%.

The biggest risk is probably interest rates remaining high. This would cause investment banking activity to remain subdued and increase the danger of loan defaults.

While there will inevitably be some ups and downs, I expect Barclays to do well over time. And I think this will lead to substantial returns for shareholders in the form of dividends.

UK shares

In general, UK shares currently trade at a discount to their US counterparts. I think this means there are some great opportunities for investors looking to earn a second income.

What matters for passive income is how much cash a business is going to generate over the long term. And that comes down to its ability to remain competitive over time.

With Unilever, Greggs, and Barclays, I think all three have good prospects. This puts them on my list of stocks for passive income investors to consider buying.

The post 3 stocks that could create lasting passive income appeared first on The Motley Fool UK.

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Stephen Wright has positions in Unilever Plc. The Motley Fool UK has recommended Barclays Plc, Greggs Plc, and Unilever Plc. 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 2024