I’ve identified three excellent FTSE 100 and FTSE 100 shares I think could supercharge my passive income. These are:
- Legal & General Group (LSE:LGEN) – 8.5% dividend yield
- Bakkavor Group (LSE:BAKK) – 8% dividend yield
- Phoenix Group Holdings (LSE:PHNX) – 10.8% dividend yield
With an average forward dividend yield of 9.1%, a £20,000 lump sum invested equally across these shares today would provide me with a second income of £1,820 in 2024. That’s assuming City forecasts prove correct.
But I’m not just looking for big dividends today. I’m searching for companies that will provide a growing cash reward over time. The good news is that I expect each of these UK shares to do this as well.
Give me a few minutes to explain why I’m aiming to buy them for my portfolio…
Legal & General is an incredible cash-generating machine. As a consequence, it has grown dividends almost every year during the past decade, as the chart below shows. The only blot on its copybook was the dividend freeze it imposed when the Covid-19 emergency exploded.
Chart created with TradingView
The near-term outlook for the financial services industry remains quite foggy. If economic conditions remain tough, then demand for products like life insurance and personal pensions could stay under pressure.
But over the coming decades I’m expecting sales — and by extension profits and dividends — at this FTSE 100 company to rise strongly. This will be driven by an ageing demographic across its territories that boosts demand for investment, protection and retirement products.
Demand for freshly-made food is heating up across the globe. People are living increasingly busy lifestyles, meaning that their desire/energy to cook (and to learn how to cook) is rapidly diminishing. It’s much easier and quicker to pick up a pre-prepared pizza, salad or a ready meal for lunch or dinner.
This is where Bakkavor comes in. It’s a FTSE 250 firm that has food manufacturing operations spanning the UK, US and China. And, pleasingly, it has spent heavily to expand capacity in North America to drive long-term earnings growth.
Weak consumer spending power could impact the company’s revenue performance in the immediate term. But its focus on a stable food sector should reduce the chance of any volatility. Furthermore, strong liquidity means it remains in good shape to keep paying large dividends.
FTSE 100-quoted Phoenix Group has some favourable similarities to Legal & General. It’s cash rich, which means it should continue growing dividends strongly over the short-to-medium term, at least.
This is thanks to the solid cash flows it enjoys through regularly collecting premiums from its customers. The firm’s strong dividend record can be seen in the graphic below.
Chart created with TradingView
Phoenix also stands to benefit from a rapidly growing elderly population. This is thanks to its business model of acquiring, managing, and running down legacy pension and insurance funds.
Okay, the firm faces similar obstacles as Legal & General too. When people have less money, spending on discretionary financial products is one of the first things to suffer. Its profits can also decline if the regulatory landscape changes.
Yet on balance, I think the potential benefits of owning Phoenix — along with Bakkavor and Legal & General — outweigh the risks. It’s why I’ll be looking to buy it when I next have cash to invest.