Passive income from FTSE 100 stocks seemed like the Holy Grail in recent years. Cash and bonds were paying next to nothing. But a portfolio of Footsie stocks appeared to offer the prospect of a high and steadily rising annual income. Generous dividend yields promised sustenance of infinite abundance.
However, due to the coronavirus crisis, it seems like dividends are disappearing every day. Is it the end of the road for generating a passive income from FTSE 100 stocks?
Dividend devastation
Around a third of FTSE 100 companies have cut, suspended or cancelled their dividends in the year to date.
These include popular passive income picks like Lloyds and the other big banks. Payouts have also gone at some blue-chip insurers, such as Aviva. Bumper dividends from housebuilders Barratt, Persimmon, and Taylor Wimpey have disappeared. As have payouts from commercial property giants British Land and Land Securities.
Stacks of fellow former high-yielders, across a range of other sectors, are also currently dividend dead losses. Cruise ships group Carnival, packaging firm DS Smith, and broadcaster ITV to name but three.
With so many dividends drying up at once, it’s a difficult time for any retiree drawing a passive income from a stocks portfolio. The situation’s also challenging for investors looking to build such a portfolio.
Passive income in retirement
For retirees drawing income and no longer putting new money into the market, what’s to be done? It’s likely to depend on your circumstances.
If your dividends provide you with extra luxuries, you may want to simply accept the reduced passive income stream from your remaining payers. And hang on to your non-payers, if you’re confident they’re capable of resuming their dividends in the not-too-distant future.
If needs must
However, if your passive income from dividends is the means of paying a significant portion of your basic expenditure, you may have to consider selling one or more of your non-dividend-paying stocks to buy some that are still paying.
There’s always a danger of jumping out of the frying pan and into the fire. But, if needs must, a fair number of companies have declared their intention to pay their scheduled dividends.
Passive income for switchers and builders
According to dividenddate.co.uk, 11 FTSE 100 companies have upcoming ex-dividend dates. The table below shows the five highest yielders of these, with the yield on the dividend being paid, and the forecast yield for the following 12 months.
|
|
Ex-dividend date |
Payment date |
Yield on upcoming dividend (%) |
Yield on forecast dividend for following 12 months (%) |
|
Legal & General |
23 April |
4 June |
6.1 |
8.9 |
|
Admiral |
7 May |
1 June |
3.5 |
5.7 |
|
Polymetal |
7 May |
29 May |
2.2 |
4.9 |
|
Morrisons |
21 May |
29 June |
2.6 |
4.0 |
|
Tesco |
21 May |
3 July |
2.8 |
3.8 |
I think these stocks are worth consideration by investors seeking immediate replacement income. But also by those looking to build a passive income portfolio.
In addition, there are a number of other stocks that have no imminent ex-dividend date, but high yields on forecast 12-month payouts. These include BP, Shell, National Grid, SSE, British American Tobacco, and GlaxoSmithKline.
Meanwhile, if you’re in the fortunate position of not having to chase just the highest yields, many Footsie stocks look attractive to me. Diageo and Unilever are two. Intertek, London Stock Exchange, and Relx, which all have imminent ex-dividend dates, are others.
It’s a difficult time but, in my opinion, not the end of the road for generating a passive income from FTSE 100 stocks.
