I’m hoping to have some extra cash to invest in UK shares over the next few weeks. So I’m building a shopping list of top dividend stocks that could give me a healthy long-term passive income.
These two from the FTSE 100 and FTSE 250 sit near the top of my wishlist.
The City of London Investment Trust
I can’t talk about dividend heroes without mentioning The City of London Investment Trust (LSE:CTY). The FTSE 250 stock has astonishingly increased its annual dividend every year since 1966.
This can be explained by the company’s focus on blue-chip UK shares. Some of its key holdings include Unilever, Shell, BAE Systems, British American Tobacco, and HSBC.
A strategy on large-cap businesses like these can be perfect for long-term passive income. Companies on the FTSE 100 and other major indexes often have leading positions in mature markets and strong balance sheets. This means they can provide healthy dividends even during economic downturns.
The one drawback is that City of London holds shares I wouldn’t buy myself. My portfolio excludes oil majors, for instance, due to uncertainties created by the switch to renewable energy from fossil fuels.
However, the investment trust is invested across a wide variety of industries, which in turn reduces risk to future growth and dividends. Energy companies for instance make up just 9.19% of the total fund.
I think the current cheapness of London-quoted shares makes now an especially good time to buy the investment trust’s shares. As City of London noted today: “UK listed shares in general continue to trade at lower valuations relative to comparable businesses overseas.” This could provide the basis for huge capital gains over the long term.
Bunzl
Support services business Bunzl (LSE:BNZL) also has a great reputation as a Dividend Aristocrat. This FTSE 100 share has raised the annual shareholder payout for a jaw-dropping 30 years.
Bunzl’s progressive dividend policy is built on its exceptional cash generation. This gives it the financial firepower to increase payments every year. It also provides scope for it to make acquisitions, which in turn pave the way for further long-term earnings and dividend growth.
But this is not the only factor behind its brilliant dividend record. The company provides a wide spectrum of essential products, from rubber gloves for the medical industry and plastic packaging for food retailers to disinfectants for cleaning companies. So demand remains stable at all points of the economic cycle.
And as these examples show, Bunzl supplies its products to a wide range of industries across the globe. Such diversification give earnings an extra layer of protection.
Now let me illustrate Bunzl’s excellent defensive qualities in action. Even as the global economy remained under pressure in the first half of 2023, revenues rose 4.5% while adjusted pre-tax profit increased 4%.
With net debt to EBITDA of just 1.1 times as of June, the Footsie company has significant scope to make extra acquisitions and keep raising dividends, too. I’d buy Bunzl shares even though supply chain issues could pose a problem in the near term.
