I’d put £55 a week into this FTSE 100 stock for £500 a year in passive income!

In these difficult times, I’m always looking for ways to generate additional passive income. Here’s one stock that’s paying a generous dividend.

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Even though the FTSE 100 is not far off its all-time high, there are still many good value dividend stocks available. These offer me the chance to generate regular passive income.

One particular company in the UK’s blue-chip index continues to catch my eye.

Out of favour?

Vodafone (LSE:VOD) was once the UK’s largest listed company. Now, it’s the 25th biggest, having seen its share price fall by over 80% since its peak in March 2000. Over the past 12 months, the stock is down nearly 30%.

It’s fair to say that the company divides investor opinion.

Some are put off by its debt levels, which have always been on the high side. At September 2022, borrowings were an eye-watering €75.6bn. Others are frustrated that successive management teams have failed to deliver growth in either revenue or earnings.

But, the company can boast of having over 500m customers in Europe and Africa and annual revenue in excess of €45bn.

Coast Capital Management recently sold its entire stake in the company. Exec James Ratesh told Bloomberg that initially he was “enthusiastic” about a lot of the changes that had taken place but, having been a shareholder for just over a year, now believes that “the original thesis proved to be incorrect“.

This view is not shared by the Emirates Investment Authority (EIA), owners of e& (Dubai’s multinational telecoms provider). EIA recently increased its stake from 11% to 12% and is Vodafone’s biggest shareholder. Citing an “attractive valuation“, EIA saw an opportunity “to obtain significant exposure to a global leader”.

Dividend

I like the company’s stock because it pays generous and reliable dividends — €0.09 per share for the past four financial years. This means the yield is currently 8.8% (using the latest euro-pound exchange rate).

Of course, there’s no guarantee that the dividend will remain at this level. Indeed, the company cut its payout by 40% in 2018. And, some will be nervous that the dividend cover (earnings divided by dividends) is well below two.

However, the directors have declared a medium-term ambition of maintaining a dividend of “at least” €0.09 per share, so it seems safe for now.

£500 a year in passive income

Vodafone’s shares are currently trading at around 90p. I’d therefore need to buy 6,313 shares at a cost of £5,682 to achieve my £500 income target.

Unfortunately, I don’t have a large cash sum available. But I could buy a few shares every week with a view to achieving my goal within two years.

Assuming nothing changes, investing £55 each week would achieve this. Buying one fewer family takeaway a week could go a long way towards finding this cash.

With a regular weekly investment, it would be necessary to use a commission-free broker. Otherwise, my buying power would be greatly reduced by fees. One thing I cannot avoid is stamp duty, which is levied at 0.5% on the cost of each purchase.

It’s also important to remember that exchange rates can fluctuate significantly. The company declares its dividends in euros, but its shares are quoted in sterling.

As well as generating additional income, there’s also the possibility of capital growth. And, instead of spending the income generated on something frivolous, I could re-invest the money and buy more Vodafone shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has positions in Vodafone Group Public. The Motley Fool UK has recommended Vodafone Group Public. 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.

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