The FTSE 100 multinational mining firm Glencore (LSE: GLEN) earned $256bn in revenue last year. That produced earnings of $19bn, of which $7.1bn is due to be paid back to shareholders as dividends. The company is extremely successful mining and trading natural resources for the world to use, and I could share in that success and earn a passive income if I bought a few shares.
I think a £1,000 a year return in the company is achievable. Here’s how I’d go about it.
Own a piece of the company
In my view, the best way to earn a passive income comes from investing in stocks. I’m not likely to start my own company, but I can own a small piece of one by picking up a few shares that will then give me an income.
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With Glencore, I would receive dividend payouts twice a year. And with a company as large and reliable as the mining giant, I can predict what my future income would be from the shares I hold.
Holding a position in any stock comes with risk, of course. My shares could lose value, dividend payments are not guaranteed, and even the best-looking business can suffer from the unpredictability of the stock market.
A golden opportunity
I think right now is a golden opportunity for me to reach that £1,000 a year target quicker than ever.
With many investors spooked because of the SVB bank crisis, I see this as a great chance to pick up shares on the cheap. The FTSE 100 is down around 8% in the last month, for example.
In Glencore’s case, the firm is down 19% in 2023, and I can buy a single share in this huge corporation for only 439p.
Less than a fiver a share sounds cheap to me – putting the company at a price-to-earnings valuation of below four – and it’s pushed the dividend yield for the year up to 10.77%.
How I’d target £1,000 a year
A back-of-the-envelope calculation shows that a £9,285 sum would give me 2,115 shares in Glencore and an income of £1,000 a year. That’s a tidy amount straight away, and it could grow over time if I reinvested the returns back into this or other stocks.
A big caveat is that the 10.77% return is unusually high. If the return came down in the future, I’d need more investment to reach £1,000 a year. For example, a 7% return would need £14,285 of shares instead.
The reality is never quite so simple. Dividends often change, and the fortunes of a natural resources company can ebb and flow depending on what the price of copper or zinc is doing.
A good general strategy I like to follow is to look for good deals and try to save and invest what I can. I’m always adding to my portfolio, and it’s great to see the investments and income grow over time.
And the next time I have spare cash available to invest, I will look to open a position in Glencore to give myself a strong second income source.
