The FTSE 100 is packed with income royalty. Three Dividend Aristocrats I reckon would help build passive income are British American Tobacco (LSE: BATS), Spirax-Sarco (LSE: SPX), and Diageo (LSE: DGE).
Although dividends are never guaranteed, here’s why I think investors should be taking a closer look at these stocks for juicy returns!
British American Tobacco
Tobacco stocks have long been seen as great options to boost passive income due to their ability to generate lots of cash. As one of the biggest businesses of its kind in the world, British American Tobacco possesses great brand power and a global footprint.
A dividend yield of 9.9% is pretty juicy, especially considering the FTSE 100 average is 3.8%. In addition to this, the shares look dirt-cheap to me on a price-to-earnings ratio of just six.
Tobacco stocks have fallen foul of ESG investors due to the ill-effects of smoking. Plus, the looming threat of increasing regulations could have an impact on sales and investor returns. However, these types of changes don’t happen overnight and can take several years, if not longer. Plus, non-tobacco products is a growth avenue that could offset any changes in regulation and drop in smoking numbers and revenues.
Spirax-Sarco
Spirax-Sarco is a global leader in the design and production of steam systems, fluid control, and thermal energy management. Although not glamorous, I reckon it is an income stock heavyweight. The firm has an excellent track record of payouts, and of growing these returns. However, it’s worth noting that past performance is not a guarantee of the future.
I reckon a big part of Spriax-Sarco’s brilliant returns policy over the years has been its impressive margin levels. These have helped the business generate lots of cash and reward investors for joining the journey.
The biggest risk for the firm at present is its debt. This could present challenges on two fronts. Firstly, debt is costlier to pay down during times of high interest, like now. Secondly, paying down debt could take precedence over investor returns in order to secure its balance sheet and protect the firm’s future.
A dividend yield of 1.5% isn’t the highest but I’m more interested in a stable, consistent payout from an industry-leading stock.
Diageo
Diageo also has an enviable track record of rewarding investors. More crucially, the business has immense brand power through its impressive portfolio of drinks. This brand power has allowed it to dominate the market and combat external headwinds over many decades. All the while, it has continued to reward investors.
The only issue for me is shorter-term volatility, which has meant consumers have less to spend on luxuries. Plus, soaring costs could impact margin levels too.
Diageo’s dividend yield of close to 3% is attractive, but I’m more impressed by its brand power and reach, which could keep the cash and rewards coming. Plus, trading on a P/E ratio of just 14, the shares look good value for money at present.
