I’m selling Nvidia shares near $1,000 to buy this top passive income stock

Our writer explains why he plans to swap shares of AI golden child Nvidia for one FTSE 100 stock offering juicy passive income.

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I feel like a bit of a hypocrite writing this, but I’m planning to sell my Nvidia (NASDAQ: NVDA) shares. With the returns, I want to beef up my passive income portfolio with one specific dividend stock.

Why do I use the word hypocrite? That’s a pretty strong description. Well, over the last year or so, I’ve written a few articles reiterating my intention to hold Nvidia stock for a decade or more.

The reasons were pretty straightforward. Nvidia has been selling shovels during this once-in-a-lifetime artificial intelligence (AI) gold rush. I think we’re more at the start of this mega-trend than the end.

The company’s A100 and H100 graphics processing units (GPUs) remain the gold standard for AI-accelerated data centres. So it really is in the ultimate goldilocks zone, as we’ve seen in its financial results.

Net income skyrocketed 286% last year to $32.3bn. This year, it’s expected to surge another 88% to $60.9bn. For context, that’s more than double the revenue posted for the calendar year of 2022!

So, why have I changed my mind? And what is this Footsie dividend share I’m buying?

Too fast, too soon

On 6 February, I wrote: “Personally, I think it’s just a matter of time before the share price rallies beyond $1,000.” It was then at $695.

Now, just one month later, the stock is at $956! Nvidia has become a $2.4trn company and is closing in on Apple’s $2.62trn market cap. My fear is that the stock has now simply gone too far, too fast.

Moreover, I don’t think the likelihood of further restrictions on the company selling advanced AI chips to China is being factored in at all. This could – I think will – cost the firm billions in revenue every quarter.

Finally, we don’t know whether the inevitable drop-off in demand for AI chips will be gradual or cliff-like. The possibility of the latter is making me nervous. So I’ve decided to pull the ripcord and reinvest my returns.

Aiming for fat dividends

The income stock I’ve decided to buy instead is one I already hold: Legal & General (LSE: LGEN). The FTSE 100 insurance and pensions giant just upped its payout by 5%, bringing the dividend to 20.3p per share.

This means the stock is carrying a very attractive dividend yield of 8.3%.

Better still, the dividend is forecast to rise to 21.4p per share in 2024. Then 22.6p in 2025. Based on today’s share price, that translates into prospective yields of 8.7% and 9.2%.

To put meat on the bones, that means I’d be aiming for £434 of passive income from a £5,000 investment. And around £492 the following year.

But will it be paid? After all, dividends are never guaranteed. Plus, the firm reported full-year operating profit of £1.7bn last year, which was 5% less than market expectations. Any further disappointments could put pressure on the company’s payouts.

Well, looking at the firm’s annual results posted on 6 March gives me confidence. It’s on track to achieve its 2020-24 target of capital generation of £8bn-£9bn (£6.8bn so far). Importantly, this capital generation is exceeding payouts, suggesting the near-term yield is achievable.

As such, I don’t mind taking profits from a red-hot AI stock when the dividends are this attractive.

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.

Ben McPoland has positions in Legal & General Group Plc and Nvidia. The Motley Fool UK has recommended Nvidia. 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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