FTSE 100 stocks are a fantastic way for me to receive a passive income.
Around 95% of stocks on the index pay some kind of dividend. And the average of 3.75% is over double the US S&P 500 at 1.66%.
But I don’t want to invest in any old firm, I want the passive income cream of the crop. So how would I find them?
Well, I’m going to use these questions to find three of the best FTSE 100 income payers.
- Does the company have a strong history of dividend payments?
- Is the current share price reasonable?
- Are the prospects good for the future?
Legal & General
Insurance and financial services firm Legal & General (LSE: LGEN) paid an 8.19% dividend last year.
At present, that’s a top-five FTSE 100 payout and would mean a £12,210 stake returns £1,000 a year.
Investors received payments even through the pandemic. Although, being in finance, they were cut after 2008. A repeat of those financial problems would be a risk here.
The £2.30 share price looks good value though, because it’s as cheap as it was in 2014. And a price-to-earnings ratio of around 6 is comfortably less than the FTSE 100 average of 14.
Looking ahead, I like that the firm’s products are extremely defensive. Through hell or high water, I think people will continue to buy insurance.
I own shares here already, and I’m confident I’ll receive a passive income from them for years to come.
Kingfisher
Retailer Kingfisher (LSE: KGF) offers a 5.19% dividend return right now.
If I bought into the owners of chains like B&Q or Screwfix, I’d receive a £1,000 yearly passive income via a £19,267 stake from those dividends.
The £2.36 share price is as cheap as it was in the 1990s. This is despite the firm adding billions to its top line in the decades since.
A weak economy would impact Kingfisher as people would have less spare cash to spend in its stores. But sales are resilient, and it looks like the UK will swerve the predicted recession.
The firm is even eyeing up a further 85 more stores for the 2023/24 financial year.
I don’t own shares here yet, but I will look at opening a position soon for the passive income potential.
Vodafone
Vodafone (LSE: VOD) makes billions through its mobile networks across Europe, Asia and Africa.
Its huge cash flows give it the highest dividend on the Footsie at 10.23%. A £1,000 return over the year would need £9,775 worth of shares.
The firm’s share price falling below £1 has bumped that dividend higher recently.
A share now costs only 76p which makes a bargain basement P/E ratio of roughly 2. The forward P/E looks more expensive though at around 9.
The company’s vast infrastructure provides it with an economic moat against rivals. But risks here do include high debt and lack of growth opportunities.
Still, I think it’s one to add to my portfolio sooner rather than later.
