Key points
- A defensive stock with a 9% yield
- A consumer firm that hasn’t cut its dividend for over 50 years
- Why my passive income strategy is benefiting from the market sell off
Billionaire investor Warren Buffett famously advised investors to be greedy when others are fearful. For my passive income strategy, the recent fall in share prices has been helpful, despite its tragic cause.
Lower share prices mean higher dividend yields, assuming those payouts won’t be cut. For this piece, I’ve selected three FTSE 100 shares that have each fallen by around 15% over the last month. I own two already and would be happy to buy the third. Here’s why.
A 50-year dividend streak
My first pick is consumer goods group Unilever (LSE: ULVR). Not very original, you might say.
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Perhaps. But I think there’s a good reason why many passive income investors (including me) own Unilever shares. This Anglo-Dutch company hasn’t cut its dividend for more than 50 years.
Unilever has faced some challenges over the last few years and its growth has slowed somewhat. But I don’t think this has changed the group’s core appeal. Unilever has many strong brands, decent profit margins and a global presence.
CEO Alan Jope has promised to invest in R&D and reshape the organisation to promote a focus on growth and efficiency. The market is cautious and Unilever’s share price is now lower than during the 2020 crash. That’s pushed the stock’s dividend yield over 4% for the first time in a decade, or so. I’ve recently bought more shares.
9% passive income yield
My next pick is a little more controversial. Tobacco group Imperial Brands (LSE: IMB) may have renamed itself, but the company’s focus is still firmly on selling cigarettes.
I admit that tobacco is an ethical minefield. But my analysis suggests Imperial’s 9% yield is pretty safe. For a passive income investor like me, that’s very tempting.
Of course, the global tobacco market is said to be in decline, especially in the developed markets where Imperial makes most of its sales. There’s also an ever-present risk that tougher health regulations could hit sales and profits.
However, newish CEO Stefan Bomhard has stabilised the group’s performance and delivered a return to profit growth. With the stock trading on six times earnings and offering a 9% yield, I’m a buyer for passive income.
Will the economy keep growing?
My final share is advertising giant WPP (LSE: WPP). This FTSE 100 share received a severe battering when its 2021 results were published in February. I think this was unfair.
The market seems to be pricing in the possibility of a global slowdown linked to rising inflation and the war in Ukraine. Personally, I think the sell-off has probably gone too far.
WPP’s 2021 results showed a strong recovery from 2020, with like-for-like revenue growth of 13% in 2021 and operating profit up by 27%. Looking ahead, CEO Mark Read expects a return to a more normal rate of growth this year, with sales up around 5%.
I think WPP shares look good value at current levels, with a yield of 3.6%. This payout should be covered around 2.5 times by forecast earnings, so even if profits fall below expectations, I don’t see much risk to the dividend.
