I’m a huge fan of passive income — the earnings that come from activities outside of paid work. In particular, my favourite form of unearned earnings is share dividends.
Delicious dividends
Dividends are the cash distributions that companies pay to their shareholders. Usually, these payouts are made quarterly or half-yearly.
However, most UK-listed companies don’t pay dividends to their owners. Some firms are loss-making, while others prefer to reinvest their profits to boost future growth. Also, future dividends aren’t guaranteed, so they can be cut or cancelled at any time.
That said, here are two dividend dynamos that my wife and I own for powerful passive income.
#1: Aviva
FTSE 100 firm Aviva (LSE: AV) is the UK’s largest general insurer, as well as a leading provider of life and pension plans. It has 18m customers in the UK, Ireland and Canada.
Alas, Aviva shares have struggled in recent years. They’re down 3.9% over one year and have dived by 38.1% over five years. But they’ve rebounded by 7.8% over the last month to 398.7p, valuing this group at £10.9bn.
Thanks to share and bond prices plunging worldwide last year, asset managers and insurers — including Aviva — had a tough 2022. Also, this market is fiercely competitive, with margins under pressure. Even so, I expect a decent set of results for this business in 2023.
We bought Aviva shares for passive income in July 2022 at 397p a share. While the price has barely budged, we’ve received a full year of dividends from this stock.
Right now, Aviva shares offer a dividend yield of 8% a year — one of the highest in the London market. And that’s why we’ll hang on tightly to our shares in this dividend duke.
#2: Glencore
Another FTSE 100 share we bought for extra dividend income is miner and commodity trader Glencore (LSE: GLEN). Glencore is very different from Aviva, both in terms of activities and scale.
The Swiss multinational employs around 140,000 people and generated revenues of almost €256bn in its latest full year. Also, Glencore is a major player in the zinc and copper markets — the latter of which is vital in the transition to a low-carbon future.
At the current share price of 456.3p, this group is valued at £56.4bn, making it a FTSE 100 heavyweight. And as with Aviva, what attracted me to Glencore was its bumper dividend payouts.
At the current share price, Glencore trades of a modest multiple of 7.4 times earnings, for a market-beating earnings yield of 13.6%. Also, its hefty dividend yield of 7.6% a year is covered 1.8 times by earnings.
Now for the bad news. These are trailing fundamentals — and Glencore’s profits are sure to be lower in 2023 than in 2022. Also, the group cut its dividend payouts in 2015, 2016, and 2020, so it has prior form in this field.
Having bought our Glencore shares only last month, it’s early days for us. But I suspect that this stock may be one of our core FTSE 100 holdings for passive income a decade from now!
