7.8% a year in passive income from 2 FTSE 100 stocks!

These two cheap FTSE 100 shares offer an average passive income of 7.8% a year. While one dividend is risky and volatile, the other is solid and boring!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Passive income text with pin graph chart on business table

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

So far, the FTSE 100 index has had a rough ride this month. Since 31 July, the Footsie has lost over 350 points, a decline approaching 4.6%. But as share prices fall and dividend yields rise, the passive income from shares looks ever more tempting to me.

Two top shares for passive income

A week ago, my wife and I embarked on a buying spree of cheap UK shares. Alas, it seems that I am ‘the Master of Mistiming’, as our first two new stocks have declined substantially in the space of a week.

However, we bought these two new holdings to generate extra dividend income over the long term. So I’m annoyed — but not panicking — over our latest buys. Here they are, offering a tasty average dividend yield of 7.8% a year.

Dividend stock #1: Anglo American

Shareholders in multinational mining giant Anglo American (LSE: AAL) have had a tough time lately.

On top of falling 6.9% in the past five days, Anglo shares have lost almost a third (-32.8%) of their value over 12 months. However, this FTSE 100 stock is up by 32.1% over five years. Note that these returns exclude Anglo’s cash dividends, which have been hefty in recent years.

However, weaker growth in China and falling commodity prices have hit miners’ cash flow and earnings this year. That said, as we move towards decarbonising the global economy, demand for metals such as copper, iron ore, and nickel should rise, boosting Anglo’s future profitability.

At the current share price of 2,015p, this group is valued at £27bn, making it a Footsie stalwart. Yet this stock offers a market-beating dividend yield of 5.3% a year, versus 4.1% for the wider FTSE 100.

In our first week as Anglo shareholders, my wife and I have had a tough time — and I expect this volatility to continue in 2023. However, 10 years from now, I hope to be pleased with this latest purchase.

Income share #2: M&G

The second share we bought last week for passive income was investment manager M&G. Compared to Anglo American, this 92-year-old global asset manager is somewhat boring (but I like that).

Founded in 1931 and spun off as a separate London-listed business in October 2019, M&G managed over £342bn of client assets at end-2022. Today, it has around 5m individual investors and more than 800 institutional clients.

Of course, M&G’s fortunes are closed tied to those of global financial markets. Thus, when stock and bond prices plunged last year, the group’s earnings and share price followed suit. As well as being down 4% in the past five days, this share has lost 12.9% of its value over one year.

Since it floated in London at 220p a share almost four years ago, M&G stock has lost 13.9%. Again, these returns exclude dividends, which are massive nowadays. Indeed, the firm’s dividend yield of 10.4% a year is one of the very highest in the FTSE 350 index.

At M&G’s current share price of 188.85p, the business is valued at under £4.5bn today. If I could buy the entire company at this valuation, I absolutely would. Instead, I’ll just have to be content with the passive income from our holding in this dividend dynamo!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D’Arcy has an economic interest in Anglo American and M&G shares. The Motley Fool UK has recommended M&G. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I’m eyeing these two cheap dividend shares for 2024!

This Fool likes dividend shares as a play for 2024. Here, he identifies two that look cheap and explains why…

Read more »

Investing Articles

This FTSE 250 growth machine is top of my list of stocks to watch in 2024

Despite a 13% fall, Games Workshop shares trade at a P/E ratio of 22. Stephen Wright plans to keep a…

Read more »

Investing Articles

The Tesla share price is a bargain to me

A lot of people think the Tesla share price is overvalued. Oliver Rodzianko disagrees. He tells us why he’s piling…

Read more »

Investing Articles

The BT share price is up 20% in a year. Should I buy now for 2024?

The BT share price has performed strongly so far in 2023. Christopher Ruane thinks it might keep moving up --…

Read more »

Light bulb with growing tree.
Investing Articles

One 9p penny stock I’m loading up on in 2024

This penny stock has fallen more than 50% over the past two years despite encouraging progress being made at the…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Should investors rush to buy Lloyds shares before the end of the year?

UK bank stocks have been trading at low prices since the crisis in March. But Stephen Wright thinks Lloyds shares…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

£8,000-£9,000 of savings? Here’s how I’d aim to turn that into passive income of £360 a month

With less than £10,000 in savings, our writer thinks he could aim to set up monthly passive income streams averaging…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 simple Warren Buffett moves I reckon could help me turn £1,000 into £100,000!

Warren Buffett has turned a £1,000 investment into one worth an incredible £70m over the decades. This writer is taking…

Read more »