I invest in the stock market regularly with the aim of increasing my future passive income. Fortunately, the FTSE 100 has an abundance of dividend shares for me to choose from.
So much so in fact that I’m sometimes like a kid in a candy store. I can’t pick which one I want due to all the delicious high-yield income on offer!
However, in these situations, I do have a trusty Footsie stalwart I can fall back on.
Ticks all my boxes
In most areas of life, boring is bad. I don’t want to watch a boring film or game of footy. I certainly don’t want to be trapped in a tedious snoozefest of a conversation.
But this changes when it comes to dividend stocks. For these, I want monotonous reliability. And I reckon Legal & General (LSE: LGEN), one of the founding members of the FTSE 100 exactly 40 years ago, fits the bill here.
Established nearly 200 years ago, L&G is the UK’s largest asset manager and one of the leading insurers and pension experts. With around £1.15trn of assets under management today, it generates plenty of cash with which it can pay rising dividends. Indeed, it is classed as a Dividend Aristocrat.
Despite the negative impact of higher interest rates on the value of some of its assets, the firm still created nearly £950m worth of cash in the first half of 2023. Meanwhile, its balance sheet remains excellent.
As an income investor, I find all this reassuring. You might even say boringly brilliant!
A new CEO is at the helm
While this stability has supported nice annual increases to the dividend, the share price has unfortunately stagnated. It has only risen around 10% in a decade.
However, the company now has a new CEO, António Simões. He’s come from the banking world, so it’s an interesting ‘outsider’ appointment.
It has been widely reported that L&G wants to expand its global operations. While this could end up generating higher growth, it does also inject a bit of uncertainty into the investment case.
I’ll be watching carefully when the new chief executive lays out his plans in a few months time.
Aiming for that grand a year
Today, the stock carries a market-thumping dividend yield of 8.3%. That means I’d need approximately 4,932 shares to generate £1,000 a year in passive income. Those would cost me around £12,034.
But what if I couldn’t afford to invest that much in one go?
Well, one solution could be to buy the stock every month and gradually work towards my target.
For example, if I bought 137 shares a month, they would cost me £334. If I did that consistently every month for one year, I’d have approximately 1,644 shares.
Keeping this up for three years, I’d end up with 4,392 shares, which would pay me £1,000 in annual passive income.
That’s assuming the dividend is met, of course. That’s never guaranteed. So I’d want a diverse selection of stocks in my portfolio alongside this one.
Plus, the share price (and, therefore, yield) will naturally fluctuate over time. If it goes down, the yield will go up, and vice versa.
But drip-feeding money in every month would help smooth out the inherent ups and downs. This strategy is called pound cost averaging.
