The idea of earning passive income by investing in blue-chip shares is neither new nor revolutionary. But it can still be very lucrative. Right now, some FTSE shares offer unusually high dividend yields
In fact, I have been buying selected FTSE shares precisely because I think they may offer me a once-in-a-decade opportunity when it comes to earning passive income.
Lower price, higher yield
Take ITV as an example. I bought more of the FTSE 250 shares for my portfolio just this week. The broadcaster and production house has recently been trading close to its lowest price for 13 years.
A share’s dividend yield is its dividend expressed as a percentage of the share price. The ITV dividend of 5p per share last year looks set to be flat this year. The interim dividend was the same as last year.
But the yield has been pushed up to 8.6%. Why, when the dividend is flat? The answer is that a falling share price has pushed up the yield.
Dividends are never guaranteed and I do see risks, such as an advertising downturn hurting sales and profits.
But ITV has a well-established broadcasting business, growing digital footprint and extensive production revenues. In the first nine months of its current financial year, total revenues inched up 1%.
Still, while an 8.6% dividend yield is attractive to me, I am doubtful that ITV is likely to grow its dividend in the short-term.
The 2% increase was just a third of last year’s 6% increase. But a rise is a rise and British American cut adjusted net debt last year by 7% to £34bn, which I see as positive for the investment case.
Currently, the yield is 9.3%. The past few months have seen the British American Tobacco share price hit lows last seen over a decade ago in 2010.
That reflects risks such as declining cigarette demand eating into revenues. They slid 1% last year, partly due to a weak pound.
But with its stable of premium brands, growing non-cigarette business and demand for fags though weakening is still significant, I continue to own the shares for their passive income potential.
Seizing the opportunity
Will such high-yield opportunities hang around? Not necessarily.
Some FTSE shares have been offering the highest yield for a decade or more lately, but that does not mean they will keep doing so. Rather than waiting hoping that prices fall even further, I aim to snap up bargains when I see them.
The sooner I buy, the sooner I can hopefully start boosting my passive income streams.