Investing in dividend stocks can be a great way to generate passive income. These stocks hand their investors regular cash payments for doing absolutely nothing.
However, it pays to be selective when picking stocks for passive income. That’s because companies can cut, cancel, or suspend their dividend payouts at any time. With that in mind, here are three dividend stocks I’d be comfortable buying for passive income in 2022.
Smith & Nephew
One dividend stock that strikes me as a top pick for passive income is Smith & Nephew (LSE: SN). It’s a leading healthcare company that specialises in joint replacement systems. SN has paid a dividend every year since 1937 and didn’t cut its payout during Covid, so it’s fair to say it has an excellent dividend track record. At present, the yield is about 2%.
I think Smith & Nephew has the potential to generate attractive total returns (dividends plus share price appreciation) in the years ahead. Throughout Covid-19, it has suffered because a lot of elective medical procedures have been postponed. As the world returns to normal, these procedures are likely to be resumed, which should boost revenues and the share price.
Of course, if Omicron results in a high level of hospitalisations, SN could struggle. In this scenario, the stock could underperform. I would expect the company to still pay a dividend however, given that it didn’t cut its payout in 2020.
Another top stock for passive income, in my view, is Unilever (LSE: ULVR). It’s a consumer goods company that owns a wide range of brands, such as Dove, Domestos, and Ben & Jerry’s. This is another company with an excellent long-term dividend track record. Currently, the yield is about 3.6%.
The reason I see ULVR as a great pick for passive income is that the company is quite ‘defensive’ in nature. Consumers tend to buy its products no matter what the global economy is doing. This means Unilever is able to generate relatively stable revenues and earnings. This translates to consistent dividends, which is ideal from an income investing perspective.
There are risks to consider here, of course. One is inflation. Recently, Unilever has been facing higher costs and this has hit profits. Another is changing consumer tastes. Overall however, I think the risk/reward proposition is attractive.
Legal & General
Finally, for a high-yielder, I like Legal & General Group (LSE: LGEN). It’s a financial services company that specialises in insurance, investment management, and retirement solutions. At present, the yield here is around 6.4%, which I see as very attractive in today’s low-interest-rate environment.
Usually, I steer clear of high yielders when investing for passive income. That’s because, quite often, a high yield is an indication the market believes a dividend cut is coming. In this case however, I see considerable appeal in the stock. Over the last decade, the company has established an excellent dividend track record (it didn’t cut its payout during Covid). And, looking ahead, City analysts expect the payout to keep rising.
One thing to note here is that financial services stocks like LGEN can be a little volatile. In other words, the share price can move up and down. But I’m comfortable with this volatility. I think the key here is to ignore the share price movements and focus on the passive income the company is providing.
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Edward Sheldon owns Legal & General Group, Smith & Nephew, and Unilever. The Motley Fool UK has recommended Smith & Nephew and Unilever. 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.