Buying FTSE 100 dividend stocks today to make a passive income is a more challenging prospect than it has been over recent years. It was previously possible to find a wide range of companies yielding in excess of 4%. Now, after the unprecedented events of the past few months, fewer opportunities exist for investors to generate an attractive income return from large-cap shares.
However, now could be the right time to buy a diverse range of those FTSE 100 stocks that continue to pay dividends. Their low valuations, dividend growth potential and relative appeal may make them a sound means of producing a passive income over the coming years.
FTSE 100 yield opportunities
The FTSE 100 may have bounced from its March lows, but investor sentiment towards the index continues to be relatively weak, as the past few days have shown. As such, there are a number of shares that trade at low prices relative to their levels over the past few years.
Lower share prices mean that the yields on offer across the index may be relatively high. In fact, it is possible to obtain a portfolio yield that is in excess of 5% at the present time, while also diversifying across a range of sectors.
Furthermore, low share prices can lead to capital growth over the long run. The FTSE 100 has an excellent track record of recovering from its bear markets to produce new record highs. This may mean that your portfolio size increases over the coming years, thereby making the task of generating a passive income somewhat easier.
An economic recovery
The fiscal stimulus and supportive monetary policy introduced after the lockdown could mean that the operating environments of many FTSE 100 companies improve over the medium term.
Certainly, there are risks facing most sectors across the index. This could lead them to report disappointing results in the short run. But, with low interest rates and quantitative easing likely to boost the prospects for the economy, many companies may be able to afford to pay a rising dividend over the long run.
Dividend growth could not only boost your passive income, but also increase the appeal of FTSE 100 income shares. Rising demand for them among investors may push their prices higher.
A lack of choice
Any investor who is seeking to generate a passive income may struggle to achieve their goal from many income-producing assets. For example, Cash ISAs and bonds now offer low income returns due to the recent fall in interest rates. Likewise, buy-to-let property could face an uncertain period due to economic weakness.
Therefore, on a relative basis, FTSE 100 dividend shares may be the most appealing income opportunity at the present time. Buying a range of large-cap income shares may boost your passive income and improve your long-term financial outlook.
