I think it’s possible to create a life-changing passive income by buying FTSE 100 and FTSE 250 dividend stocks. While dividends are never guaranteed, the exceptional track records of the following income shares suggest they could be great ways to make extra cash.
The average dividend yield on Footsie shares sits at 3.9%. But I believe I can generate much better dividend income by buying shares in National Grid (LSE:NG.) and Hargreaves Lansdown (LSE: HL).
| Company | Forward dividend yield | Predicted dividend growth |
|---|---|---|
| National Grid | 5.9% | 3% |
| Hargreaves Lansdown | 5.6% | 10% |
Each of these UK blue-chip shares offers much larger yields than most FTSE companies, as the table above shows. And I fully expect them to provide growing dividends over time to help me build a big nest egg for retirement.
Here’s why I expect them to provide me with a market-beating passive income in the coming decades.
National Grid
Keeping Britain’s lights on is an expensive business. And adapting the power grid for the green energy revolution also requires vast amounts of capital spending. Combined, they could impact the level of dividends National Grid pays going forward.
Yet the FTSE firm remains a more relaible dividend stock than most other UK shares. The essential services it provides gives it exceptional earnings stability and strong cash flows, regardless of broader economic conditions. Its monopoly on maintaining the electricity grid gives it added strength to pay big dividends too.
And sure, National Grid’s investment in connecting renewable energy assets is mightily expensive. In November, the business raised its five-year investment budget that runs to 2025/2026, to £42bn. That’s £2bn more than it predicted six months earlier and further upgrades could be coming.
But the huge sums it’s spending in the UK and US to expand and improve its asset base should provide the bedrock for sustained annual dividend growth. And as a long-term investor, this is what I’m looking to build a solid income for the next 30 years.
Hargreaves Lansdown
Hargreaves Lansdown is enjoying a strong start to 2024. Speculation of tumbling inflation and interest rate cuts are subsequently fuelling hopes that financial services demand could rebound.
A recovery is no means certain, and especially as economic conditions in the UK remain tough. But I’d still buy the former FTSE 100 company to capitalise on its exciting long-term growth potential.
Hargreaves Lansdown is one of the biggest players in the business and has 1.8m customers on its books. That’s almost four times as many as fierce industry rival AJ Bell.
The company has a superb opportunity to continue growing its client base as Britain’s elderly population booms too. This demographic phenomenon is supercharging demand for investment and savings products.
Growing concerns over the future State Pension age and benefit levels are also fuelling investing activity. This is illustrated by the sharp rise in the number of Stocks and Shares ISA subscriptions of late. These leapt 8% in the 2021/2022 tax year, latest data shows, to 3.9m.
Hargreaves Lansdown has a strong record of dividend growth in recent times. Indeed, unlike many UK shares it even continued to raise shareholder payouts during the pandemic.
A strong balance sheet also means it looks in good shape to keep growing dividends despite its current problems.
