For me, recent market weakness makes it a good time to target passive income from dividend-paying shares. And if I had spare cash I’d buy some more.
For example, I like the look of Moneysupermarket.Com (LSE: MONY). The company operates price comparison websites for insurance, money, home services and other products.
On 18 October, the third-quarter update showed 15% growth in revenue and 6% for the year so far. And as with many businesses, such a positive performance disagrees with the fallen share price.
Ahead of expectations
The directors said the outcome was “ahead of expectations”. And they predict full-year earnings before interest, tax, depreciation and amortisation (EBITDA) will likely come in “towards the upper end of market expectations”.
I see this enterprise as a ‘cash cow’ rather than a growth proposition. And that reflects in the record of steady shareholder dividend payments. Indeed, payments continued even through the pandemic.
There’s competition in the sector. And that could threaten the progress of the business in the years ahead. However, this is a well-established brand. And that will be hard to replicate for would-be challengers.
Meanwhile, with the share price in the ballpark of 178p, the forward-looking dividend yield is around 6.8% for 2023. I think the stock could make a useful addition to my diversified portfolio.
But I’m also keen on DS Smith (LSE: SMDS). The firm provides sustainable packaging solutions, paper products and recycling services worldwide.
Very good trading
On 10 October, Smith surprised the market with an upbeat trading statement. Performance had been “very good” and the directors said they expect full-year trading to April 2023 to be “ahead of expectations”.
The company skipped dividend payments in the depths of the pandemic. But cash flow held up well. And, since then, the company has made payments and they are set to rise.
Smith faces competition in the sector, and there’s quite a bit of debt on the balance sheet. Those factors could make life difficult for the business in any severe economic turndown.
Nevertheless, I’d embrace the risks to include this stock in my portfolio. And with the share price around 290p, the forward-looking dividend yield is about 6% for the trading year to April 2024.
I’d also go for National Grid (LSE: NG), the operator of energy transmission and distribution systems in the UK and the US.
Steady operational progress
On 10 October, the company delivered its pre-close update. And trading had been “in line” with directors’ expectations. We’ll find out more with the interim report due on 10 November.
I think the firm occupies a well-defended niche within the power systems at home and abroad. But there is a lot of debt on the balance sheet. Although that’s not unusual for utility companies that need to plough a lot of capital into maintaining and improving networks.
However, rising interest rates and regulatory demands could make it difficult for the company to keep up its shareholder dividend payment in the future. Nevertheless, the multi-year dividend record is robust. And I’d embrace the risks and aim to hold this stock for the long term.
With the share price near 940p, the forward-looking yield is near 6% for the trading year to March 2024. And that’s attractive to me.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith and Moneysupermarket.com. 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