Right now, I own a number of stocks that generate passive income. I’m looking to buy a few more though. With that in mind, here are five dividend-paying shares I’m considering for 2023.
FTSE 100 income stocks
One stock that strikes me as a top pick for income next year is insurance and investment management powerhouse Legal & General. This stock, which is part of the FTSE 100 index, currently offers a yield of over 7%.
LGEN has put together an impressive dividend track record over the last decade and has solid dividend coverage (the ratio of earnings to dividends) right now. So I think the income here is pretty secure.
On the downside, this stock can be volatile at times. If I was to buy it, I’d need to be prepared for share price swings.
Elsewhere in the FTSE 100, I’m looking at Tesco. Its yield is almost 5% at present.
What I like about Tesco is that it’s a relatively defensive company. People aren’t going to stop buying food because there’s a recession (although they may trade down to cheaper supermarkets).
This defensiveness is reflected in the company’s share price, which tends to be less volatile than the broader market.
Looking outside the Footsie, one stock I see a lot of appeal in is Renewables Infrastructure Group (TRIG). It’s an renewable energy investment company that owns a broad portfolio of wind and solar farms across the UK and Europe. Its goal is to provide steady returns to shareholders through dividends.
TRIG is a reliable dividend payer and for 2023, it’s projected to pay out 7p per share to investors. That equates to a yield of about 5.5% at the current share price.
It’s worth noting that TRIG sometimes needs to raise capital to fund growth. This can send the share price temporarily lower. I’m comfortable with this risk though.
In the real estate investment trust (REIT) space, I’m considering buying Primary Health Properties. It invests in healthcare properties such as GP surgeries.
One thing I like about this REIT is that a large chunk of its rental income is backed by the government. So it’s unlikely to find itself in a situation where it can’t collect rental income (a big plus in the current environment).
I also like the yield on offer. Currently, it’s over 6%. The valuation here is above the market average, so the stock isn’t cheap. I think it deserves its premium however.
Strong dividend growth
Finally, in the small-cap space, I’m looking at Impax Asset Management. It’s a niche investment firm that specialises in sustainable strategies. At present, the yield on offer here is around 4%.
I’m drawn to this stock for two main reasons. Firstly, interest in sustainable investing is booming. So I reckon there’s potential for strong total returns (capital gains plus income) in the long run.
Secondly, the company is increasing its dividend at an impressive pace. Recently, it hiked its full-year payout by a huge 34%. So it could be a cash cow going forward.
A risk here is that earnings (and the share price) could take a hit if stock markets fall in 2023.
At the stock’s current valuation (P/E ratio of less than 20) though, I think the risk/reward proposition is attractive.
Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties Plc and Tesco 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 2022