I’d buy 6,742 shares of this stock to generate £200 of monthly passive income

With a dividend yield of 8%, Muhammad Cheema takes a look at how Glencore shares can generate a healthy monthly passive income.

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I’m always looking for shares that can make me a good passive income on the side. Glencore (LSE:GLEN) shares are currently trading with an eye-catching dividend yield of 8%. So, is now the time for investors like me to take a deeper look into this stock?

Its share price has had a pretty torrid year so far, falling by over 18%.

The FTSE 100 has fallen by almost 3% in the same period.

Therefore, it might’ve seemed like a terrible investment in 2023, which is fair to say.

But for those investors, like myself, who like to generate income from their investments, this is a great opportunity.

That’s because the cost to obtain Glencore shares dividend is now 18% cheaper.

The path to passive income

At the time of writing, Glencore shares are trading at £4.45, yielding 8% in dividends.

It’s important to keep in mind that dividends aren’t guaranteed, but with an outlay of £30,036.28 on its shares, I can generate £200 of monthly passive income.

This won’t remain at this level either. For example, the interim dividend paid out was 69% higher in 2023 than in 2022. While it might not necessarily grow at this level going forward, I expect the extra £200 of monthly income to continue growing over time.

The amount of monthly income I’d make would increase further if I reinvested some or even all my dividend income back into the stock.

Short-term risks       

Glencore’s financial statements noted that China accounts for nearly half of global demand for many commodities.

This is quite a concern when China is in a bit of an economic mess right now. Therefore, demand problems could present themselves.

Over the short term, Glencore’s numbers may be negatively affected as a result.

This could ultimately affect the dividend. When the economy was shaky in 2016 and 2020, Glencore completely cut the dividend paid out, so it isn’t out of the question that it would do it again.

Why I’m confident it will continue to pay its dividend

Glencore released its third-quarter production report for 2023 earlier this week.

It revealed solid production performance in the first nine months of the year, where many key metals performed in line with expectations.

This should provide investors with reassurance that the problems expressed above are not so prevalent.

Now what?

With a price-to-earnings (P/E) ratio of just seven, its shares are trading at very cheap levels.

This represents a great opportunity and entry point to buy its shares to build a strong and healthy monthly passive income.

Furthermore, although there are short-term concerns regarding the demand for commodities, the long-term outlook remains very optimistic.

The digital economy is continuing to expand and we are living in an increasingly greener world. This will require a lot of metal, which Glencore is in a great position to benefit from.

If I had the spare cash to do so, I’d buy Glencore shares today.

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.

Muhammad Cheema has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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