I’m looking for ways to supercharge my passive income portfolio in the new year. Fortunately, there’s a variety of options available to investors like me, seeking regular income with minimal effort.
So here are four ideas I’m exploring to earn passive income from the stock market in 2023.
1. Dividend Aristocrats
Dividend Aristocrats are companies that have paid and increased dividend payouts over a long period. Hallmarks include strong business fundamentals, low debt levels, and a history of regularly increasing annual profits.
As companies with solid track records, I think they could play a critical role in boosting my passive income. Indeed, this could be a tricky year for investors. Global recessions loom and inflation rates remain stubbornly high.
Importantly, Dividend Aristocrats are likely to have survived tough economic climates. Although there’s a risk I could be sacrificing better growth opportunities elsewhere, I consider that’s a price worth paying to invest in resilient businesses.
Examples from the FTSE 100 index include drinks giant Diageo and power network operator National Grid. Diageo currently yields 2.1% and it’s hiked dividends every year for two decades. National Grid’s dividend yield is higher at 5.1% and shareholder distributions haven’t been cut in 26 years.
2. Energy stocks
Disruption in global commodity markets has sent the share prices of many energy companies soaring. I think this will continue to be a key theme in 2023.
Currently, I don’t have the exposure to this sector I’d like. Accordingly, I’m looking to add energy stocks to my holdings in anticipation they could outperform again this year.
However, that’s not to say they’re without risks. Commodity prices could fall and government intervention in energy markets could intensify. These might be headwinds to further growth after astronomic gains in 2022.
Nonetheless, I believe large energy players, such as Shell and BP, deserve prominent positions in my portfolio. The Footsie oil majors yield 3.4% and 3.8% respectively.
3. FTSE 250 dividend stocks
Large-cap stocks aren’t the only place to look for passive income. There are plenty of attractive dividend stocks in the FTSE 250 index.
A key advantage that many FTSE 250 companies have over their FTSE 100 blue-chip counterparts is greater potential for capital growth.
However, the higher risk/reward profile means mid-cap stocks can often experience higher volatility. Moreover, their dividends can be less reliable than those paid by well-established companies.
Home furnishings retailer Dunelm and speciality chemicals outfit Johnson Matthey are on my watchlist. These shares yield 4.1% and 3.7% respectively.
In addition to energy, I want to boost my exposure to property. Real estate investment trusts (REITs) offer a passive way to achieve this. These companies own, operate, or finance income-generating real estate.
Diversification is a crucial consideration for me when picking stocks for my portfolio. By investing in REITs, I can take advantage of passive income streams from a different asset class, compared to more traditional stocks.
Granted, as interest rates continue marching higher, property markets could cool this year. Nonetheless, I’d still allocate a small percentage of my portfolio to REITs.
One option I’m considering is the UK’s largest commercial property development and investment company Land Securities Group, which yields 6.3%.
Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and Land Securities Group 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 2023