Generating a steady stream of passive income is the ultimate goal for many investors. Sitting back and reaping the profits while others manage the business I’m invested in? Yes, please.
If only it were as easy as that. My colleague Jonathan Smith worked out how much capital you would need to start generating a passive income of £1,000 per month. Spoiler alert — around £166,666 invested in certain dividend stocks would do the trick. While that is a figure to aspire to, I’d be happy with a smaller amount every month to supplement my other income streams.
One way I would do that is to buy a handful of FTSE 100 shares with generous dividend yields. Dividends are payouts given to shareholders in a company when the company is doing well and profits are strong.
Insurance giant Aviva is a dividend stock I like that has room to grow this year. The company has one of the highest yields in the FTSE 100 currently. If I bought at the current share price of 360p, the yield stands at 7.5%.
With a price-to-earnings (P/E) ratio of 5.68, the Aviva share price seems to be on the cheaper side of the Footsie. Of course, if the share price were to stall or lose value while I hold the investment, then the yield would be redundant.
Aviva shares have dropped around 11% in the last year. That may sound ominous, but that is broadly in line with the FTSE 100 index as a whole, which has fallen 10%.
So far, investors appear pleased with new CEO Amanda Blanc. Blanc is working to make the business more efficient its core markets of UK, Ireland, and Canada.
I’m backing the company to return its share price to growth this year. As a result I would add Aviva to my portfolio for the passive income it could generate through its dividend yield.
Another company I’d consider adding to my portfolio for passive income is British American Tobacco. As the name suggests, tobacco products remain their key brands. However, the company has recognised the need to move towards newer products due to the health risks associated with cigarettes.
The company’s revenues have not been impacted by Covid-19 as much as had previously been expected. With its quarterly earnings report and forecasts to be released Wednesday, analysts have projected organic topline revenue growth of 6.7% in 2021.
At its current share price of 2630p, British American Tobacco shares return a dividend yield of more than 8%. An attractive prospect for income investors.
There is risk involved in buying shares of the company, however. Not least is the move towards a more health-conscious population, which is increasingly shunning cigarettes. More investors than ever now focus on ethical investing. The company is unlikely to make it into these portfolios any time soon.
For now though, the projected revenue growth and 8% dividend yield mean I would add British American Tobacco to my passive income portfolio.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
conorcoyle has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.