The FTSE 100 started 2023 at 7,452. It’s now trading 1.6% higher. It did briefly reach 8,000 in February, but fell close to 7,300 in March. Otherwise, this year the index of the UK’s largest 100 listed companies has remained stubbornly within the 7,500-7,600 range.
Other major stock market indexes have performed better. Over the same period, the NASDAQ is up over a quarter and Japan’s Nikkei has increased by a similar amount. And the STOXX Europe 600 has risen by 7%.
But I think it’s possible to take advantage of the FTSE 100’s doldrums and turn £10,000 into passive income of £460 a year. If I had that kind of money available, here’s what I’d do.
The mighty five
The index is a weighted one. This means the largest companies have the most influence.
The five biggest — AstraZeneca, Shell, HSBC, Unilever, and BP — currently account for 32.75%. And given that four of these giants’ share prices have been a bit flat this year, it’s not surprising that the FTSE 100 has struggled.
| Stock | Share price change 2023 (%) | Share price vs. 2023 peak (%) | Expected yield 2023 (%) |
| AstraZeneca | +1.5 | -4.7 | 2.2 |
| Shell | -3.8 | -14.4 | 4.4 |
| HSBC | +14.2 | -6.5 | 8.5 |
| Unilever | -4.8 | -11.3 | 3.6 |
| BP | -3.9 | -18.2 | 4.4 |
| Average | +0.6 | -11.0 | 4.6 |
But based on their 2023 expected dividends, these five stocks are presently yielding 4.6%. If I was in a position (unfortunately, I’m not) to invest £2,000 in each, I could earn £460 a year in passive income.
And four of them (AstraZeneca being the exception) make a payment each quarter. This means I could generate a steady income stream throughout the year.
It’s possible to earn more by investing in other stocks. However, in theory, the biggest companies are less likely to cut their dividends as their earnings are more resilient to economic shocks. As a risk-averse investor, this is important to me.
What’s more, their stock prices are, on average, 11% below their 2023 peak. If they returned to these levels, my hypothetical £10,000 could become £11,100.
Of course dividends are never guaranteed. And stock prices might never return to their previous highs. But history suggests that — over the long term — the UK stock market should grow.
I’m therefore hopeful that the FTSE 100 will reach 8,000 again.
Difficult times
The index is dominated by banks, energy companies, and mining stocks. These sectors have each faced challenges in the first half of 2023.
The banking industry was rocked by a crisis in the US that saw three of the country’s four biggest failures in history.
Energy stocks have been affected by an 8% fall in the price of oil.
And the earnings of miners have been impacted by erratic commodity prices, largely prompted by concerns over the strength of the economic recovery in China.
Reasons to be cheerful
But I think the weakest banks have now been exposed, most forecasters expect the oil price to increase towards the end of the year, and the Asian economy is likely to be the fastest growing in 2023. Also, inflationary pressures should start to ease and consumer confidence pick up.
For these reasons, the UK’s five largest listed companies — and the wider FTSE 100 — should have a better second half of the year.
But even if I’m wrong, I’d still be generating a decent second income from my £10,000 investment, which is always welcome in these difficult times.
