The FTSE 100’s market crash may dissuade some investors from seeking to obtain a passive income from large-cap dividend stocks. After all, dividends have been reduced by a wide range of businesses over the last few months. And their share prices have also come under severe pressure.
However, with other income-producing assets, such as cash and bonds, offering exceptionally low returns, dividend stocks could be relatively appealing.
By focusing your capital on a diverse range of financially-sound businesses with solid track records of dividend payments, you could obtain a growing passive income in the long run.
Dividend track record
Many FTSE 100 companies may have solid track records when it comes to paying dividends over the last decade. After all, the world economy experienced a period of strong growth. That allowed many businesses to experience improving levels of profitability. As such, they were able to reward their shareholders through higher dividends.
However, the economic outlook has drastically changed in a matter of months. Therefore, it may be a good idea to assess whether a company previously continued to pay dividends during more challenging economic periods, such as during the global financial crisis. This may be a more relevant period for investors today than recent years, since the prospects for the economy over the coming months could be challenging.
Through buying those companies with a solid track record of paying dividends in a range of operating conditions, it may be possible to obtain a more resilient passive income.
Financial strength
The financial positions of FTSE 100 companies may also dictate how robust their dividends will be in the coming months. For example, stocks with large cash positions and easy access to further liquidity could be in a stronger position to maintain their dividend payouts. Even if their sales and profitability come under pressure.
Therefore, buying companies with solid balance sheets could be a means of improving your passive income prospects. They may be less likely to cut their dividends. Even if they do reduce shareholder payouts, they may be in a stronger position to grow them as the wider economy recovers over the long run.
FTSE 100 opportunities
Even though there are now fewer FTSE 100 companies paying dividends than there were at the start of the year, spreading the risk across a wide range of stocks continues to be a sound move. It reduces your reliance on obtaining dividends from a small number of businesses that could lead to a sharp fall in your income should they experience financial difficulty.
As the economy recovers, it’s likely to become easier to unearth attractive dividend shares. This should make diversification easier for income investors. It’s also likely to mean FTSE 100 shares have the potential to produce improving dividend prospects. And that would make them more attractive on a long-term view relative to other assets such as cash and bonds.
As such, now could be the right time to buy a range of large-cap dividend shares.
