2 FTSE 100 powerhouses for passive income

In my search to replace all of my earnings with passive income, I’ve found two FTSE 100 firms that are paying out massive amounts of cash to their shareholders.

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As I approach retirement (perhaps five years or more away), I am increasing the number of dividend shares in my family portfolio. Over time, I hope this passive income from share dividends — mostly from FTSE 100 stocks — will replace or exceed my current earnings.

Two dividend monsters

For example, I’ve been looking at two Footsie super-heavyweights that pay enormous dividends to their shareholders. That said, future dividends are not guaranteed, so could be cut or cancelled without notice.

Indeed, even the smaller of the two funnels around £3.7bn a year in cash to its patient owners. Here they are, sorted by market size, based on closing prices on Friday, 16 February.

1. HSBC

HSBC (LSE: HSBA) is the UK’s third-largest listed company by market value. Founded in 1865, this banking Goliath now does much of its business in East Asia, particularly in Hong Kong and China.

Based on the current share price of 638.8p, this mega-bank is valued at a whopping £118.8bn. Today, its shares offer a historic dividend yield of 5.2% a year, which is comfortably above the FTSE 100’s yearly cash yield of 4%.

Thanks to its huge size and high yield, HSBC has paid out roughly £6.2bn in cash to shareholders over the past 12 months. And though its shares are up 3.3% over one year, they have lost 4.1% of their value over five years (excluding dividends).

The bank is also buying back its shares by the billions, which should also boost future returns. I don’t own HSBC shares, largely because I’m wary of companies with close links to mainland China. Even so, I’ve added this stock to my watchlist, based on its ability to pay out huge chunks of cash.

2. Unilever

The second of my big beasts for passive income is consumer-goods behemoth Unilever (LSE: ULVR). My wife and I bought into this dividend duke in August 2023, paying what I thought was a fair price of 4,122.2p a share.

Alas, this FTSE 100 stock had much further to fall, bottoming out at a 52-week low of 3,671.5p on 23 January. Currently, Unilever shares have rebounded 9.8% to stand at 4,029.5p. This values this European business at a nice, round £100bn — #4 among the Footsie’s giants.

Unilever’s dividend yield of 3.7% a year is slightly below the wider index’s cash yield. However, this Anglo-Dutch group has a long history of lifting its dividends as revenues, profits, and cash flows rise.

Despite its storied pedigree, Unilever’s share price has dipped 4.8% over one year and 5.2% over five years. This was partly driven by falling sales growth in its major regions in 2022/23. But price hikes and a new focus on its core products could restore growth in 2024/25.

As it stands, my wife and I are sitting on a paper loss of 2.2% since we bought into this FTSE 100 champion. But I hope that our share of nearly £4bn in yearly dividends will soon offset this modest decline!

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.

Cliff D’Arcy has an economic interest in Unilever shares. The Motley Fool UK has recommended Unilever. 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.

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