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How I’d start earning passive income with these stocks right now

Kevin Godbold
·3-min read
A person holding onto a fan of twenty pound notes
A person holding onto a fan of twenty pound notes

The real estate sector is a good hunting ground for stocks paying decent dividend yields. And property is a good industry to include in my portfolio of diversified shares for generating passive income.

There’s been good news from property developer Watkin Jones (LSE: WJG) today in its full-year results report. Decent trading has enabled the firm to reinstate dividend payments, despite the ongoing pandemic. The share price shot higher in early trading. But it isn’t too late for me to add the stock to my portfolio.

Passive income from the dividend

With the share price near 205p, the forward-looking yield is just below 4% for the trading year to September. And I reckon there’s potential for shareholder payments to increase in the years ahead. The company said in the report the return to dividends was “driven by robust performance with foundations in place for future growth.”

Watkin Jones reckons it’s the UK’s “leading” developer and manager of residential property for rent. And it focuses on the build-to-rent (BtR) and purpose-built student accommodation (PBSA) sectors. As such, the stock will give me decent diversification between sub-sectors in the wider property arena. I’d consider buying it alongside other shares such as housebuilder Persimmon.

Richard Simpson, chief executive of Watkin Jones, said in the report operations performed well. And in the period, the company secured more sites to increase the development pipeline and position the business for further growth.

Although the pandemic caused delays to investment activity, forward sales have picked up. And Simpson reckons the business will likely return to growth as early as during the current trading year. Although that outcome assumes there’ll be no further “significant disruption to our activities.” Overall, Simpson is “very confident” in the long-term prospects for the company’s markets. He said strong sector dynamics and investor demand support the business and its prospects.

Diversification between companies and sectors

I reckon Watkin Jones is worthy of my own thorough analysis and research right now with a view to buying the stock to hold for several years. I’d aim to compound gains by reinvesting dividend income along the way. But I wouldn’t stop with this stock or even with other shares in the wider property sector.

When it comes to building a reliable passive income, I think diversification between sectors and companies is desirable. And I’m particularly attracted to companies operating less-cyclical businesses. Such defensive outfits can often be found in sectors such as IT, Technology, Utilities, Power, Healthcare, Fast-moving Consumer goods and others.

So, I’d also look closely at big-yielding, cash-generating enterprises such as British American Tobacco, GlaxoSmithKline, National Grid, Severn Trent and Sage. Packing dividend yields into my portfolio from names like these will likely give me a decent passive income that’ll keep on giving for years to come.

The post How I’d start earning passive income with these stocks right now appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended GlaxoSmithKline, Sage Group, and Watkin Jones. 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 2021