As a big fan of passive income, I quickly realised three things while scouring the FTSE 100 index earlier today for shares that pay big cash dividends.
First, plenty of Footsie shares offer great dividend income to shareholders. Second, my wife and I already own four of the FTSE 100’s top ten cash payers. Third, the highest-paying income stocks are concentrated in just a few sectors.
Two stocks for powerful passive income
In a month, my wife will receive a tax-free lump sum. We aim to invest this windfall into shares offering a good balance between passive income and future capital gains. Thus, here are two income stocks that are now on our buy list.
Should you invest £1,000 in Centrica right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Centrica made the list?
Income share #1: M&G
Share-price performance: -0.4% over one year, -10.7% over five years (excluding dividends)
Dating back to 1931, savings and investment group M&G (LSE: MNG) today manages money for over 5m clients worldwide. Alas, the group had a troubled 2022, thanks to the biggest falls for stocks and bonds in decades. But as markets rebound this year, I view this Footsie share as a potential ‘dividend dynamo’.
At the current share price of 201.14p, M&G is valued at under £4.8bn. To me, this indicates that it could be a takeover target to be gobbled up in the ongoing consolidation within global asset management.
Also, M&G’s dividend yield of 9.7% a year is one of the highest cash yields in London. Of course, future dividends aren’t guaranteed, so they can be cut or cancelled without notice. But I’m expecting the board to at least hold this payout in 2023.
Despite my concerns that the growth of passive investing could hit its fees, M&G is among my top FTSE 100 buys for future passive income.
Dividend stock #2: Glencore
Share-price performance: -9.5% over one year, +14.3% over five years (excluding dividends)
My second stock for passive income is global mining and commodity trading company Glencore (LSE: GLEN). This group digs up and sells vital commodities worldwide, which is a messy business. Hence, ESG (environmental, social, and governance) investors often shun mining stocks.
At the current share price of 435.8p, Glencore is valued at £54.2bn, making it a FTSE 100 heavyweight. Yet the group’s valuation has tumbled over a fifth in 2023, due to slower global growth depressing commodity prices.
While I’m certain 2023 will be tougher than 2022 for Glencore, its stock looks way too cheap to me. It trades on a multiple of under 4.2 times historic earnings, for an earnings yield of 24%. That’s around three times the FTSE 100’s earnings yield.
Also, Glencore’s dividend yield of 8.4% a year is covered 2.9 by earnings. Therefore, even though its profits are set to fall this year, I don’t foresee big cuts to this cash payout. But the group did reduce its dividend in 2015, 2016, and 2020, so who knows?
Finally, while we plan to buy both shares next month, my wife and I wouldn’t ‘bet the farm’ on either stock. History has shown us that a balanced, well-chosen portfolio of perhaps 20-30 income shares is a wiser route to rising passive income!
