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Investors should always exercise extreme caution when choosing which growth or dividend stocks to buy. This becomes even more critical when working on a limited budget and the likelihood of separation (and by extension the risk) is low.
There are always risks with stock investing. Markets can go up and down. And surprises can arise that can ruin a company’s previously positive investment case for speculators.
But with some detailed research, investors can significantly reduce the risk to their assets. There are two high-end stocks that I would buy with my last £5k to generate long-term passive income.
Legal and general group
Financial services giant Legal and general (LSE: LGEN) has one of the largest dividends on FTSE 100. The 8% figure is more than double the 3.9% index.
In fact, the company has a track record of paying above average. Thanks to this exceptional cash flow, it remains impressive to this day. Cash generation rose 22% in the six months to June, to £1bn, which in turn boosted its Solvency II capital ratio to 212% from 182% previously.
Legal & General serves clients in the asset management, life insurance and pensions sectors. As people become more financially active – and particularly as uncertainty over the state pension makes retirement planning even more important – I expect business activity at the company to steadily increase.
Legal and general stock prices offer excellent value today. As well as that huge yield, it carries a forward price-to-earnings (P/E) ratio of just 7.3 times. I would buy it even if the deteriorating economic outlook dampens earnings growth in the near term. Don’t miss out on those amazing cash flows.
Real estate investment trusts (or REITs) are popular stocks for reasonable income. This is because they are required to distribute nine-tenths of the annual profit in dividends. What’s more, the predictable rent they receive gives them a means to provide regular income.
Asura (LSE: AGR) is a low risk REIT that I buy for my own portfolio. It owns and manages primary healthcare assets in the UK, whose demand is growing significantly as the country’s population ages rapidly and the demand for healthcare grows.
Of course, healthcare is one of those industries that is unaffected by broader economic conditions. This gives Asura unique revenue visibility and helps it become a true shareholder. Shareholder payouts have increased over a nine-year run here.
My only concern is how future changes to NHS policy might be for GP surgeries and the like. Asura currently trades at a forward P/E ratio of 18.5 times. Meanwhile, the City’s annual dividend yielded a record 5.3% dividend, which is forecast to rise for the 10th consecutive year.