This summer, I’m on the lookout for FTSE 100 shares that can help me earn money while I sleep. I’m focussing on UK dividend stocks with substantial yields that will help me to create passive income streams without any extra work on my part.
Here are two Footsie dividend stocks that could be good additions to my portfolio in June.
Abrdn
Abrdn (LSE: ABDN) is a global investment management business that currently offers shareholders an impressive 8.2% dividend yield. The Abrdn share price has experienced a substantial 28% decline this year, but I believe this may present a good opportunity to buy cheap shares.
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The FTSE 100 company’s financial results for FY2021 look broadly encouraging to me. Fee-based revenue rose to £1,515m from £1,425m the year before. In addition, adjusted operating profit also increased to £323m from £219m.
With dividends per year remaining steady and a low price-to-earnings (P/E) ratio — currently below four — Abrdn stock appeals to me as a value investment in addition to the passive income opportunities it offers.
The major risk facing Abrdn shares is broad weakness in the stock market, in my view. Capitulation in FTSE 100 shares could happen this year in a nervy trading environment. Fund manager stocks, such as Abrdn, are likely to get burned in a severe downturn if investor confidence dips.
Nonetheless, Abrdn recently completed a £1.5bn takeover of retail investment platform Interactive Investor, funded from its own capital resources. The company’s healthy financial position and expansive ambitions are good reasons for me to buy Abrdn shares as a long-term hold while they’re down.
Rio Tinto
Rio Tinto (LSE: RIO) is the world’s second-largest metals and mining corporation. It offers shareholders one of the top dividend yields in the FTSE 100 index, currently above 10%. Moreover, the Rio Tinto share price has enjoyed a more promising start to the year than Abrdn, climbing 15.5% so far.
What I particularly like about Rio Tinto is the combination of big dividend payments and a low P/E ratio, which is currently just above 5.5. In its FY2021 financial results, the company delivered a 71% increase in dividends per share.
Of course, Rio Tinto shares are not without risks. The company is highly cyclical. Its share price is correlated to commodity prices, as the value of the company’s underlying resources fluctuates.
Iron ore production makes up the vast majority of Rio Tinto’s revenue. The slowdown in China’s construction sector, as the world’s largest importer of the industrial commodity, has suppressed demand.
However, the upcoming twice-per-decade Chinese Communist Party Congress later this year could signal a dramatic shift in government policy to revive China’s struggling economy. Renewed Chinese demand for iron ore could, by extension, lift the Rio Tinto share price.
I wouldn’t expect regular double-digit dividend payments over the long run due to the company’s cyclical nature. But, I’m drawn to the potential Rio Tinto offers for excellent returns, particularly at times when other equities aren’t delivering. I’d invest some spare cash in this FTSE 100 dividend stock in June.
