The FTSE 100 continues to trade below its pre-coronavirus level, even after the recent stock market rally. As such, a number of stocks have relatively high dividend yields that could provide a generous passive income in the long run.
Furthermore, large-cap shares may offer greater stability and resilience. Especially when it comes to making an income return than smaller businesses. As such, the index could currently be a better buying opportunity for £5k, or any other amount.
High dividend yields among FTSE 100 shares
At the present time, the FTSE 100 is trading over 10% below its price level of a year ago. Investors seem to be concerned about the prospects for a wide range of industries in what’s a challenging set of economic conditions. As such, further declines and volatility from the index cannot be ruled out. Similarly, there’s no guarantee that any company will pay a dividend in future, even if it has done in the past.
However, the index’s lower price level means that some of its members now have dividend yields that are relatively attractive. In fact, it’s possible to build a diverse portfolio of stocks that, when combined, has a dividend yield above 4%, or even 5%.
And, with many large-cap shares set to return to paying dividends this year after pausing or postponing shareholder payouts in 2020, the prospect of a rising passive income from a broader range of companies could be ahead.
Large-cap shares could provide stability
Clearly, the FTSE 100’s performance over the last year has been anything but stable. Further volatility and ups-and-downs may be ahead. However, relative to smaller companies, large-cap shares could offer a degree of stability when it comes to making dividend payouts.
For example, they may have stronger financial positions and a wider range of liquidity options than smaller businesses. Furthermore, larger companies may be less reliant on single customers or markets that could mean their revenues are more resilient.
Certainly, growth rates from larger companies may lag those of smaller businesses. However, given the risks facing investors at the present time, the prospect of greater resilience from a passive income stream made up of dividends from larger companies could be a more attractive situation on a risk/reward basis.
Investing £5k in dividend stocks today
With other mainstream assets offering low income returns, due in part to low interest rates, FTSE 100 stocks could provide a logical option for an investment today. The index has a wide range of members and a track record of growth and high yields. This could mean the rewards from buying shares are relatively high.
Meanwhile, the solid financial positions of many large-cap shares could mean they also offer less risk than smaller stocks that may initially tempt investors via their high dividend yields.
