Investing in FTSE 100 and FTSE 250 shares can be one of the best ways to create long-term wealth.
This is thanks in part to the exceptional, inflation-beating returns that UK shares deliver. Through capital appreciation and dividends they’ve provided average yearly returns of 8% over the long term.
It’s also because of the concept of compounding. This involves the reinvesting of dividends so that I make money on my initial investment as well as on said shareholder payments.
2 top dividend shares
Focusing on dividend stocks can be an effective method of building wealth over years. But it can also provide an essential capital boost during cost-of-living crises like today.
Let’s say that I choose to invest in shares with a 9.4% forward dividend yield. If I invest £10,000 today and dividend projections prove correct I’d have an extra income of £940 to help me survive this cost-of-living crisis.
With this in mind here are two FTSE 100 shares I’d buy today. I think they could help me generate solid passive income long into the future.
Glencore
With inflation running hot it can be difficult to get a positive return by investing in UK shares. But buying Glencore (LSE:GLEN) shares could allow me to do just this.
Its forward dividend yield sits at that 9.4% right now. This is ahead of consumer price inflation, which sat at 8.7% in May, latest figures showed.
On the negative side, earnings here could come in lower than forecast as the global economy splutters. This could in turn have a significant impact on dividends. The predicted payout here is covered just 1.5 times by anticipated earnings for 2023.
Yet Glencore’s robust balance sheet strength should help it meet City projections. It has basically no debt on its books (net debt crumbled to just £75m as of December). And the firm’s bright earnings outlook beyond this year could encourage it to pay those market-beating dividends.
Demand for commodities like copper, aluminium and zinc are all expected to soar due to trends like decarbonisation and urbanisation. And with supply set to lag projected consumption, the prices of the materials Glencore produces and markets look on course to rise strongly.
Rio Tinto
This is why I already own shares in fellow FTSE 100 share Rio Tinto (LSE:RIO). And given its 7.3% dividend yield for 2023 I’m tempted to increase my holding there too.
Dividend cover also sits below the desired safety watermark of 2 times for this year, at 1.6 times. Yet it also has decent financial headroom to meet current dividend estimates. Its net-debt-to-EBITDA ratio stands at a slight 0.2.
Like Glencore, Rio Tinto is putting its balance sheet to work to grow long-term earnings and, by extension, future dividends. Just this month it announced plans to spend $498m to develop underground mining operations at its Kennecott asset in the US.
I plan to hold this mining stock for years. And I think it could give me exceptional passive income in the meantime.
