FTSE shares: a once-in-a-decade opportunity to earn passive income?

Our writer’s been looking for bargain shares in the FTSE 100 and FTSE 250 that could offer him unusually high dividend yields at their current price.

| More on:
Stack of new one pound coins

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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%.

Growing dividend

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.

By contrast, Dividend Aristocrat British American Tobacco (LSE: BATS) this week delivered the latest in a series of annual dividend increases that stretches back to the last century.

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.

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.

C Ruane has positions in British American Tobacco P.l.c. and ITV. The Motley Fool UK has recommended British American Tobacco P.l.c. and ITV. 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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

2 recession-resistant UK stocks I’d buy and hold for a decade!

Our writer details two UK stocks she believes could still continue to perform well in a recession and not feel…

Read more »

Back view of blue NIO EP9 electric vehicle
Investing Articles

Down 31% this year! Is now the moment to buy NIO stock?

NIO stock has moved sharply downwards in the past couple of months. Christopher Ruane likes the business potential -- but…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 dividend stocks I reckon could grow payouts for years to come!

This Fool is looking for dividend stocks and explains why these two picks could be primed to grow their payouts…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Should I buy, sell, or hold my Rolls-Royce shares at £3.50?

This Fool considers what he should do with his Rolls-Royce shares following the FTSE 100 company's excellent full-year results last…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

With a spare £280, here’s how I’d start buying shares this March

Our writer reflects on what he has learnt on the stock market to explain how he would start buying shares…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Are these expensive FTSE 100 stocks actually brilliant bargains?

Paul Summers takes a closer look at two FTSE 100 stocks that could recover strongly in time, despite already carrying…

Read more »

Investing Articles

What might the recent Aviva share price performance tell me as an investor?

Christopher Ruane looks at how the Aviva share price has performed over the past 12 months and considers whether he…

Read more »

Investing Articles

Down by a quarter, is the BT share price a steal?

The BT share price has more than halved in the past five years. What is holding it down -- and…

Read more »