In around six weeks, my wife and I will receive a tax-free cash windfall, which is nice. Hence, I’m already hunting for shares to buy in order to invest this lump sum.
Our main goal is to produce more passive income to replace our earnings when we eventually retire. In the meantime, we’ll reinvest our share dividends into buying yet more stock.
We plan to buy these two FTSE 100 shares in the immediate future:
#1. Glencore
One of the first shares we aim to buy for our family portfolio is the stock of global mining and commodity-trading giant Glencore (LSE: GLEN).
At Tuesday’s closing share price of 427.8p, the group was valued at £54.3bn, making it a FTSE 100 heavyweight. However, the stock has been much higher this year, hitting a 52-week high of 584.5p on 18 January.
Glencore shares have lost 16.6% of their value over the past year, largely linked to falling commodity prices due to slower global growth. However, they’ve risen by 13.3% over the past five years (both figures exclude dividends).
Although history has taught me that mining stocks can be volatile and their future dividends sometimes unpredictable, I’m drawn to Glencore shares by their market-beating dividend yield.
Currently, this Footsie stock trades on a rock-bottom multiple of 4.1 times earnings, which translates into a bumper earnings yield of 24.3%. However, falling earnings in 2023 will drive up that multiple this year.
As for their cash yield, the shares offer a market-busting payout of 8.1% a year. Even better, this is covered three times by historic earnings. Then again, miners have a long history of cutting their cash payouts and Glencore is no exception, having done so in 2015, 2016 and 2020.
Despite the obvious risks of investing in a mining company in a weaker economy, I think much of the bad news may already be baked in to the share price. Therefore, I look forward to making Glencore an early candidate for my new buy list.
#2. M&G
Moving away from the dirty and dangerous world of mining, my second pick seems much more boring and staid. It’s the stock of asset manager M&G (LSE: MNG).
UK-based M&G is a savings and investment company with a pedigree dating back to 1931. Today, it manages money for more than 5m clients worldwide.
Of course, as an asset manager, its prospects are closely tied to global financial markets. So when stocks and/or bonds plunge in tandem (as happened last year), its earnings take a knock.
At its 52-week low on 29 September 2022, the stock hit 159.3p. It leapt to peak at 229.9p on 2 March. But then a series of mid-sized US banks failed, sending financial stocks slumping worldwide.
At the current share price of 200.1p, M&G is valued at almost £4.8bn. This leaves its shares down 7.7% over one year and 11.2% over five years (excluding dividends).
But with markets bouncing back, I expect the group to have a better 2023 than 2022. Meanwhile, its juicy dividend yield of almost 9.8% a year is hefty compensation for me to own its shares, which I hope to do soon!
