2 top dividend stocks that have paid reliable passive income for decades

For anyone chasing passive income, dividend stocks remain the first port of call. The trick isn’t just finding a high yield though — it’s about consistency. A dividend has to be well-supported by earnings per share, with coverage ratios that show the business can afford to keep paying through thick and thin.

Reliability’s the cornerstone here. That’s why I like to focus on stocks with long histories of paying and even growing dividends, regardless of short-term market bumps.

Two such names that stand out are James Halstead (LSE: JHD) and Value and Indexed Property (LSE: VIP). Both carry attractive yields, have decades-long dividend track records, and have proven resilient through multiple market cycles.

Of course, dividend stocks typically come with some profitability risks, but with such long histories of reliable growth these two still look attractive.

Personally, I think James Halstead’s stronger fundamentals make it the more compelling of the two, but both are worth thinking about for investors seeking passive income.

James Halstead: strong fundamentals, weak sentiment

The commercial flooring manufacturer James Halstead yields around 6% — a healthy level for investors seeking reliable passive income. The company’s raised its dividend for more than 20 consecutive years, an impressive feat in an industry that can be cyclical.

Coverage looks decent too, with a payout ratio of 86% that’s comfortably sustainable given the company’s earnings. Add in a return on equity (ROE) of 24.6% and a net margin of 15.7%, and it’s clear that profitability remains a strong point. Plus, it has a clean balance sheet and looks well-priced, with a debt-to-equity ratio of just 0.03 and a price-to-earnings (P/E) ratio of 14.

So why has the share price fallen 16.6% this year? Economic pressures have hit sales, with weaker construction activity dampening demand. Investors are nervous ahead of its FY results due on 1 October, where lower profits are expected. If those disappoint, the stock could fall further. That’s the main risk here — operational weakness translating into weaker sentiment.

A property-backed income play

Value and Indexed Property’s a closed-ended fund that invests in UK commercial property alongside small-to-medium-sized companies.

Coverage is less convincing than James Halstead’s, with a payout ratio of 96.8% and cash coverage at just 0.9 times. That means dividends are being paid right up to the limit of what earnings and cash flow allow.

While the fund remains profitable — with a net margin of 60.8% and return on equity of 6.7% — it does run the risk of overextending itself. The debt-to-equity ratio of 0.64 is manageable, but higher than I’d like to see for a property play.

The company’s also heavily tied to the health of the UK property market, which is recovering but still patchy. Thin margins and missed earnings expectations in the last two years add further pressure. A dividend cut can’t be ruled out if conditions worsen. That said, the sheer consistency of past payouts makes it an option many income investors might still consider.

But still, it currently offers a dividend yield of 6.6%, which higher than average in its sector. Importantly, it has a stellar track record with more than two decades of consistent dividend growth.

The post 2 top dividend stocks that have paid reliable passive income for decades appeared first on The Motley Fool UK.

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Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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