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Investing for passive income often requires a different strategy from the one used when investing for capital growth. Some dividend stocks provide chunky payouts, but have limited potential for share price appreciation. Conversely, many popular growth stocks don’t pay dividends at all.
But the two objectives don’t have to be mutually exclusive. Some UK stocks boast both strong growth prospects and powerful passive income.
These five look like attractive candidates to consider for a Stocks and Shares ISA.
A quality quintet
Over the past five years, the FTSE 100 index has risen 36%. Today, the average dividend yield across FTSE 100 stocks is 3.36%. I was curious to see which shares have beaten the index’s five-year performance, but also offer yields higher than the Footsie average.
The companies below meet the criteria.
| Stock | Five-year gain | Dividend yield |
|---|---|---|
| Aviva | +113% | 5.7% |
| BT | +48% | 4.6% |
| HSBC | +108% | 5.5% |
| Sainsbury’s | +41% | 4.9% |
| Shell | +70% | 4.1% |
This mix spans different sectors for portfolio diversification. Covering insurance, telecoms, banking, retail, and energy, there’s a resilient blend here that reduces the risks from potential downturns in a particular industry.
Backtesting this portfolio produces an impressive result. If an investor had split their £20,000 ISA allowance evenly between these shares five years ago, they’d now have a portfolio worth £35,215, not including some decent dividends along the way. That’s a massive 76% gain from share price increases alone.
It would also deliver a substantial passive income stream. At current yields, an investor could earn around £1,746 in annual dividends if they’d held these stocks until today, giving them extra cash to reinvest into more shares or spend on something nice.
Past performance doesn’t guarantee future returns, and dividend payments are never a sure-fire passive income source since they can be reduced or even halted altogether. It’s crucial to appreciate the risks involved. That said, this is a high-quality group of FTSE 100 shares well worth a closer look.
The standout pick
From this selection, the company that achieved the strongest five-year performance also has the highest dividend yield today. Let’s take a deeper dive into the prospects for Aviva (LSE:AV.) shares.
Aviva’s a longstanding player in Britain’s insurance industry. It also has a significant presence in Ireland and Canada. Having more than doubled its share price since 2020, I think the firm can still build on its stellar performance in recent years.
Business is ticking along nicely. The group’s general insurance premiums rose 9% to £2.9bn in the first quarter, and the balance sheet’s in good shape with a Solvency II coverage ratio of 201%. Looking ahead, the company’s planned acquisition of Direct Line Insurance Group this year should strengthen Aviva’s offering in motor and home insurance.
However, the Competition and Markets Authority (CMA) is conducting a probe into the £3.7bn takeover deal. Its findings are due by 10 July. This could throw a spanner in the works. Aviva shares also remain vulnerable to economic shocks and the increased frequency of natural disasters, which have hurt the Canadian business in recent years.
Nevertheless, with a 5.7% yield to tempt investors, I think Aviva looks like a great stock to consider for both passive income and growth, despite the risks.
