I’m investing flat out in FTSE 100 stocks to generate a passive income for my retirement, which seems to be accelerating towards me.
I’m hoping to turn the recent stock market sell-off to my advantage by picking up some of my favourite dividend income stocks at reduced prices.
The lower entry price is just one benefit. I also hope to get a higher rate of income than before the recent FTSE 100 falls. Dividend yields are calculated by dividing a company’s dividend per share by its share price. So when share prices fall, yields automatically rise.
I’m shopping for income stocks
If I had £7,000 to invest in a Stocks and Shares ISA between now and April 5, I’d spread it across at least three or four stocks, operating across different sectors to further reduce my risk. That reduces the fallout if one of them underperforms, or if management is forced to scrap or suspend dividend payments.
I’d start by investing £2,000 of my £7,000 in Aviva, an income stock I’ve been hankering to buy for ages. It hasn’t delivered much share price growth lately, but it does have a juicy yield of 7.8%, covered 1.7 times by earnings. That would generate income of £156 in the first year, based on my £2k stake. I’m also pleased to note that management recently announced a £300m share buyback, a sign that it’s putting shareholders first.
Aviva isn’t the raciest stock but right now, I’m looking for dividend income rather than capital growth.
I’d then look to pop my next £2,000 into telecoms giant Vodafone Group, which always seems to be among the top half dozen highest-yielding stocks on the FTSE 100. Its shares have developed a habit of falling rather than rising, but its 8.46% yield is ample compensation for an income-hungry investor like me. My £2k would deliver income of £169 a year.
I’m after dividends not capital growth
Next, I’d consider putting £2,000 into tobacco maker Imperial Brands, which yields 7.53%. My income here would be £151 in year one.
Now I’ve got just £1,000 left of my original £7k. Housebuilder Taylor Wimpey yields 8.09% and that’s my final pick. While the housing market is a worry, I’m hoping we’ll avoid a full blown crash as property is in short supply and mortgage rates have fallen.
Market movements are impossible to predict with any consistency, but a dirt-cheap valuation of 6.2 times earnings rewards me for the risks I’m taking. My £1k would give me income of £80 a year.
In total, my £7,000 would generate total income of £556 in the first year, which works out as £46 a month. Naturally, that’s not guaranteed. If we slip into recession any of these companies could take a knife to their dividends.
Their share prices could fall even further, reducing the value of my £7,000 capital. That’s always the risk when investing in shares, but I’m willing to take it to generate the passive income I’m looking for in retirement. It helps that I plan to hold these stocks for decades, which should help me sidestep short-term risks.
I may not be able to scrape together enough cash to buy all four of these passive income stocks before April 5, but I’ll do my best.
