Buying UK-listed companies is a great way to generate passive income. The FTSE 100 is renowned for rewarding investors with sizeable dividend yields. And comparing the index to overseas competitors, such as the S&P 500, this certainly rings true.
The average FTSE 100 yield sits at 3-4%, while its American counterpart lies closer to the 2% mark. This year alone, the Footsie is forecasted to pay investors over £84bn in dividends.
With UK shares looking cheap, I think right now presents a great opportunity for investors to dip into the market and start building passive income streams.
And here are two stocks I’m watching closely.
Footsie stalwart
For me, Legal & General (LSE: LGEN) is a great option. I already own shares in the financial services powerhouse and I’m tempted to buy more.
The stock offers one of the highest yields in the Footsie, closing in on 9%. Moreover, the shares currently look cheap, with Legal & General trading on a price-to-earnings ratio (P/E) of just 6.
The business has placed an emphasis on boosting dividends in the last few years. This has come in the form of its cumulative dividend plan, which ends next year.
Since the plan’s inception in 2020, the firm has taken solid strides in boosting returns to shareholders. The last decade has also seen its dividend per share grow consistently.
My only concern with the stock is the volatility we’ve seen in the financial sector recently. This could damage L&G’s share price in the short term.
But as I’m targeting passive income over the long term, I think the stock is a must.
Banking giant
I’ve also been looking at HSBC (LSE:HSBA). The stock currently offers a dividend yield of nearly 4.5% and, like Legal & General, it looks cheap, with a P/E ratio of 7.
What I like most about HSBC is its diversification. It has operations across the globe, with around two-thirds of its profits generated in Asia, predominantly China.
However, its exposure to China is a double-edged sword. While the country poses a threat via geopolitical tensions, more importantly the vast economic growth forecast within the country and its neighbours, I think offers large opportunities for the bank.
This diversification also means it’s less impacted by the ongoing issues we’re seeing in the UK as inflation continues to run rampant.
As such, the firm has posted some strong results so far this year, including profit before tax rising to $12.9bn in Q1, from $8.7bn the year prior. Within its results, it also announced plans of a share buyback scheme totalling $2bn.
Long-term potential
It’s worth noting that dividend payments can be reduced or cut altogether by any business. And this can occur at any moment.
However, if I was looking to generate passive income today, these are the stocks I’d target. With long-term growth potential and above-average dividends, I’ll be tracking these stocks closely.
Should I have some spare cash in the near future, I’ll look to add them to my portfolio.
