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Generating passive income takes more work than many investors might think. I think the key is to pick high-quality dividend shares that can deliver regular income and weather any economic storms in the long run.
That’s why I’ve picked out two reliable dividend payers in the FTSE 100 that I think are worth considering for those investors trying to build a steady second income.
Consumer staples giant
Unilever (LSE: ULVR) is known as a reliable defensive dividend payer in the Footsie. The company has a wide portfolio with household brands including Dove and Magnum. This gives it global reach and steady demand even when the economy weakens.
With a share price of £46.34 as I write on 18 June, the stock is trading on a forward price-to-earnings (P/E) ratio of 18.3. That’s a touch higher than the Footsie average but I’d expect to pay a slight premium for defensive stocks.
The company’s 3.2% dividend yield makes it one worth considering. On top of that, I liked the company’s full-year results announced in February, showing underlying sales growth of 1.9% and a 12.6% increase in profit.
It’s not all upside of course. Sluggish demand in emerging markets like Indonesia and China poses a risk to future growth. Of course, competition is fierce and margins remain tight while the company tries to keep up with ever-shifting consumer tastes.
Still, for those seeking income with a defensive tilt, Unilever’s consistency and dividend history are hard to ignore.
Alcoholic beverages titan
Diageo (LSE: DGE) is another name that I think is worth investors considering for income. The company has a large portfolio of alcoholic beverages including Johnnie Walker and Guinness.
The stock currently trades at around £19 at the time of writing, with a forward P/E ratio of around 15 and a dividend yield of 4.1%.
Diageo’s premium spirits segment makes up a significant chunk of its portfolio, which adds resilience in the event of further economic weakness.
What about the risks? Recent weakness in Latin America and sluggish performance in the US has spooked some investors and contributed to a 25% decline in the company’s share price over the past 12 months.
Investors are also concerned by falling alcohol demand as the market for non-alcoholic options continues to grow.
While I wouldn’t expect enormous future revenue growth, I think Diageo’s sheer size and ability to pivot towards trends in the beverage sector could deliver in the long run.
The company has a diversified portfolio of top-tier brands, which underpins its ability to weather the economic cycle and deliver a steady long-term passive income stream.
Key takeaways
There are numerous quality dividend shares for investors to choose from. I believe in long-term investing and looking for opportunities to generate a steady second income.
Defensive sectors like consumer staples can help to achieve this by being less susceptible to cyclical changes in consumer demand compared to companies in sectors like construction or leisure. However, that often means they can come at a higher cost with this perceived ‘safety premium’ reflected in the price.
I think both Unilever and Diageo are large, well-established companies that hold strong market positions. I think that makes them worth considering as part of a diversified portfolio for investors seeking to build a long-term passive income.
