The Motley Fool

3 steps to earn an ongoing high-yield passive income from FTSE 100 stocks

Screen of price moves in the FTSE 100
Image source: Getty Images.

After last year’s dividend drought, 2021 has been a great year for me to earn a solid passive income. More and more FTSE 100 companies restarted dividends. And some of them, that actually saw an unexpected boom because of government support during the pandemic, now have jaw dropping dividend yields.

Why dividend yields could drop in 2022

It might not be as easy to earn a high-yield passive income in 2022, however. There are a few reasons for this. The first most obvious one is the coronavirus variant, that could send us back into lockdowns. All companies impacted by it may well decide to withhold dividends again. 

5 Stocks For Trying To Build Wealth After 50

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 a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Also, public spending has already slowed down and could gradually end over the next year or so. The process might ease if severe restrictions need to be placed because of the pandemic again, but eventually it will end. This could impact stocks from mining to real estate that have boomed because of various government supports. Notably, these stocks also have among the biggest dividend yields. So, these could be impacted too. 

So how would I earn an ongoing high-yield passive income from FTSE 100 stocks now?

Step #1: check dividend history

I would take three steps to try my best to ensure this. The first is to consider the dividend history of all FTSE 100 stocks. I would then narrow my list of potential purchases to only those stocks that have a history of paying dividends. This should stretch to at least five years and ideally, if the company has paid dividends for much of the past decade, that would be even better. 

Step #2: consider the dividend yield

Once I have this short-list of stocks, I would consider ones that have a present dividend yield of at least 4%. It should be at least this much for the next year, because that is the expected going rate of inflation. And I would like my returns to be higher than that.

Among the ones that presently make the cut-off yield, I would consider both their present yield along with what it has been over the past say, five years or so. The reason is to get some visibility for my long-term income from the stock. If a company, for instance, has earned a windfall that has resulted in a high yield last year, that might not work for me over time.

So, I would consider both its present yield and that over time to come to a balanced conclusion about how much I could expect to receive. This should shorten my list of potential investments further. 

Step #3: the state of the industry 

Finally, I would consider where the company is at. If it is expected to see challenging times in the near future, like in the case of tobacco stocks or even possibly real estate, then I would think before buying the stock. But if it is likely to continue being stable, it could just be the FTSE 100 stock for me. I think that I would end up with utilities, selected miners, and insurance companies.   

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies still 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 a 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.

Click here to claim your free copy of this special investing report now!

Manika Premsingh 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.