Earning a passive income is perhaps the pinnacle of financial freedom. And amid an array of potential avenues for doing so, investing in FTSE 100 income stocks represents a tried-and-tested approach.
The UK’s blue-chip index is home to a broad range of well-established companies known for their stability and long-standing performance. By buying shares in some of them, investors can receive a second income in the form of dividend payments.
But which companies would I invest in if I was looking to build a reliable passive income stream?
Centuries of experience in the insurance market
First up, I’d buy some Aviva (LSE:AV.) shares. The multinational insurance company has more than 320 years of experience in the sector with over 18.7m customers.
With this wealth of experience comes a track record of robust financial performance. And so far, this year hasn’t been any different. To illustrate, back in August the group reported an 8% rise in first-half operating profit to £715m.
As a result of the upbeat performance, the total interim dividend was raised by 8% to 11.1p. This nicely complements a juicy dividend yield of 7.5%.
However, as is the case for every firm in the sector, no dividends are guaranteed. For example, back in April 2020, Aviva became the latest company in a long line of financial institutions suspending dividend payments in light of the Covid-19 pandemic. It goes to show that all it takes is for earnings to take a hit is an unexpected economic challenge.
Despite this, the long-term outlook for Aviva looks promising in my eyes. This is thanks in part to the group’s digitisation efforts, which place it well ahead of competitors. For example, a key strategic priority is top-quartile efficiency with technology at the core.
And best of all in my hunt for reliable passive income, the group’s full-year dividend plans are backed by a strong capital position.
Working towards a clean energy future
Another company that I think fits the bill is National Grid (LSE:NG.) As one of the world’s largest publicly listed utilities focused on transmission and distribution of electricity and gas, the group plays a crucial role in connecting millions of people to the energy they need.
That said, my main concern with National Grid is that its fortunes are largely in the hands of the regulators. To illustrate, because the group is a monopoly, it’s the regulator, Ofgem, that has the final say over the group’s profit potential.
Ofgem can also intervene wherever it deems necessary in order to protect the interests of consumers and help industries achieve environmental improvements.
Nonetheless, National Grid has a good relationship with Ofgem, which in turn allows the group to earn a reasonable profit, with the potential to earn more if it exceeds targets. What this actually results in is a consistent revenue stream and minimal borrowing costs. Not to mention a dividend that should remain relatively reliable.
As well as having the traditional pros that come with investing in a utilities company, I think National Grid has some unique growth opportunities. These look set to be unlocked by the record £7.7bn investment in clean and smart energy infrastructure across 2022/23.
