Just 1 FTSE 100 stock for 10 years of passive income? Here’s what I’d buy

If restricted to selecting just one top-tier stock for passive income for the next decade, our writer already knows where he’d put his money.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Charged with the task of buying one FTSE 100 dividend stock to hold for the next decade, I know which company would be on my shopping list.

What makes this dividend stock so great?

Before revealing the identity of my favourite top-tier income provider, it makes sense to briefly say why I selected it.

First and foremost, I wasn’t hunting for the stock with the biggest dividend yield.

Should you invest £1,000 in BAE Systems right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?

See the 6 stocks

While there are certainly exceptions to the rule, a monster payout can be a signal that the market has concerns about how well a company is trading. In such a situation, these concerns can cause investors to sell and the share price to fall. This pushes the yield up, but then there’s a big question mark about whether it will actually be paid.

Call me boring but I’d rather receive an average dividend over a bigger one that never arrives.

Instead of size, I place more importance on whether the company has a great track record of raising dividends over time. Why? Because a trend of hikes suggests this business is great at growing profits over the long term.

And the winner is…

Top of the passive income pops, at least in my opinion, is defence juggernaut BAE Systems (LSE: BA.)

This company satisfies the criteria covered above. Yes, the yield is only 2.5% as things stand. But it’s got an almost faultless history of growing the amount of cash it throws back to its investors.

On top of this, analysts expect this year’s dividend to be covered over twice by earnings. Put another way, there’s a really good chance it will be paid.

In demand

I also think the outlook for dividends from BAE is very positive.

This is one of the biggest players in a sector that simply must continue innovating to ward off bad actors. In fact, ongoing conflicts such as that involving Ukraine and Russia have nudged governments around the world to increase their defence budgets. This has caused BAE’s order book to swell.

The downside to this purple patch is that a lot of growth already looks priced in. The shares currently change hands for almost 20 times FY24 earnings. That’s way above BAE’s average over the last five years (15). Should the company now fail to meet expectations, some of the recent gains could be lost.

Created with Highcharts 11.4.3BAE Systems PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

This brings me to another important point.

A dose of reality

An exercise like this is just for fun. In reality, relying on just one stock to meet all my passive income needs is courting disaster.

This isn’t empty talk. FTSE 100 peer Burberry has been forced to completely cut its payout in 2024 due to flagging sales. That’s a company with 168 years of trading under its belt.

The best way to reduce this risk is for me to own stakes in a variety of UK businesses. Doing so should offer a degree of protection even if one or two are forced to reassess their dividend policies.

Future buy

Right now, I have a preference for owning growth stocks in my portfolio, hence why I’m not rushing to buy this stock today.

But I can definitely see myself taking a stake in the future if retiring early and living off my investment income became possible.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems and Burberry Group Plc. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Young female analyst working at her desk in the office
Dividend Shares

A 9.28% dividend yield? Here’s the forecast for HSBC in 2025 and beyond

Mark Hartley considers the long-term prospects of the UK's largest bank, examining the reasons behind its surging dividend yield and…

Read more »

Investing Articles

A rally could be coming for the UK stock market! Here’s how I aim to profit

Mark Hartley considers a strategy to profit from a potential UK market rally. Which stocks are best-positioned to sidestep the…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the rare dip in this FTSE powerhouse’s share price just the right time for investors to consider buying it?

This FTSE 100 banking giant has seen its price tumble following the US tariffs news, but could the rare dip…

Read more »

Investing Articles

After an 18% fall, is Rolls-Royce’s share price now just too cheap for me to ignore?

Rolls-Royce’s share price was caught in the recent FTSE 100 sell-off. But now might be the time for me to…

Read more »

Investing Articles

11% yield! Could this UK stock  be a huge opportunity for investors targeting a second income?

An double-digit dividend yield could be second-income buying opportunity if the stock market is underestimating this UK translation company. 

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

This FTSE 250 REIT’s been unaffected by Trump’s tariffs. And it’s yielding 8.3%

Our writer’s found a FTSE 250 real estate investment trust that hasn’t been caught in the fallout from ‘Liberation Day’.…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Dividend Shares

Blimey, what’s happened to the Barclays share price?

After hitting a 15-year high at the end of February, the Barclays share price has plunged in the past two…

Read more »

Dividend Shares

On 8.6 times earnings and a cash yield of 9%, this FTSE 250 share seems too cheap

It's been a rough week or so for UK shareholders, with the FTSE 100 and FTSE 250 both plunging. Yet…

Read more »