Investing in FTSE 100 shares is a very easy way to generate some extra income. Over 90% of the companies in the Footsie currently pay dividends to their shareholders and the yields can be quite attractive.
Here, I’m going to put the spotlight on a Footsie company that looks set to pay some very healthy dividends in the near term. Buying 2,000 shares in this company could potentially generate annual income of over £350.
Income stock
The company I want to highlight today is DS Smith (LSE: SMDS). One of the FTSE 100’s under-the-radar names, it’s a packaging business that specialises in sustainable solutions.
Its customers include e-commerce/retail companies such as Amazon and Tesco, as well as fast-moving consumer goods (FMCG) firms that produce things like food, beverages, and pet food.
Now, some people might look at this stock as boring. After all, it’s hard to get excited about packaging. But boring can be good when investing, especially when it comes to generating income.
Often, boring stocks are neglected by a lot of investors. This can mean there’s more value (and potentially more income) on offer for those who are willing to invest in them.
Good investing is boring
Legendary investor George Soros
5.8% dividend yield
Zooming in on the income potential here, City analysts currently expect DS Smith to pay out 18.3p per share in dividends for this financial year (ending 30 April 2024).
At today’s share price of 314p, that equates to a yield of around 5.8%.
This means that if an investor was to buy 500 shares in the company for a total cost of around £1,570 (ignoring trading commissions), they could be in line to receive about £92 in annual income.
If they were to buy 2,000 shares for a total cost of around £6,280, they could be set to receive annual income of around £366.
Attractive long-term story
Now, there are some risks to be aware of here.
For starters, dividend forecasts aren’t always accurate. So, there’s no guarantee that DS Smith will pay out 18.3p per share for the current financial year. The payout could be lower than this.
Meanwhile, there’s the risk that the company’s share price could fall from here. This scenario could wipe out any gains from income received.
It’s worth noting that economic conditions can affect demand for DS Smith’s products, so a deterioration in the global economy could impact the company negatively.
All things considered, however, I like the risk/reward proposition today.
This is a company that looks set to benefit from both the growth of online shopping and the increasing focus on sustainability in the years ahead.
And currently, it’s trading at a significant discount to the market from a valuation perspective.
So, I think it could be a great stock to buy for income.
