The FTSE 100’s a great place to search for passive income stocks. The UK’s premier index is packed with financially robust and mature companies with great track records of paying dividends to their shareholders.
The average forward dividend yield for Footsie companies stands at 3.5%. But with a little research I think I can do better than this.
Here are two that have grabbed my attention. As we can see, the 2025 dividend yield on these shares comfortably beats the FTSE 100 average.
Should you invest £1,000 in M&G right now?
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| Company | Sector | 2025 dividend yield |
|---|---|---|
| Taylor Wimpey (LSE:TW.) | Housebuilding | 6% |
| M&G (LSE:MNG) | Financial services | 9.6% |
This means I could make a four-figure second income next year with a lump sum investment. Indeed, a £15,000 one-off investment could secure me a £1,170 passive income, if broker forecasts prove accurate.
Dividends are never guaranteed. But I think these companies could prove excellent income generators next year and beyond. Here’s why.
Taylor Wimpey
Housebuilder Taylor Wimpey’s expected to cut the full-year dividend fractionally in 2024, City analysts reckon. This is in response to tough trading conditions brought on by higher interest rates and a subsequent rise in mortgage costs.
Revenues at the FTSE 100 firm dropped 7.3% in the six months to June, latest financials showed. And so pre-tax profit fell by a whopping 58.1%.
It’s a threat that might persist if inflation in the UK remains sticky. However, the smart money seems to be on a steady cooling in price rises that could prompt further Bank of England (BoE) action.
City analysts are expecting market-stimulating rate reductions over the next couple of years. And so Taylor Wimpey’s tipped to grow dividends again from next year as earnings recover.
A 27% bottom-line improvement is tipped for 2025, rebounding from a tipped 17% drop this year.
Under government plans to supercharge housebuilding — 300,000 new homes are currently being targeted between now and 2029 — Taylor Wimpey could deliver phenomenal dividend growth in the longer term too.
M&G
By contrast, savings and investments provider M&G has been boosted by BoE action in recent times. Adjusted operating profit soared 28% year on year in 2023, thanks in large part to interest rate hikes that started the year before.
So unlike Taylor Wimpey, M&G will be negatively impacted by decisions on Threadneedle Street. But it’s not all bad. With pressure on consumer spending lifting, the company can also expect a pickup in demand for its financial services should rates keep falling.
This isn’t all, as sales should also rise due to a steady demographic change in Britain. I’m talking about a steady rise in the size of our older population. Investment specialists like this should also benefit from a growing interest in financial planning, fuelled by worries over the future of the State Pension.
These factors underpin City expectations that M&G will follow a 62% annual earnings improvement in 2024 with a 20% rise next year.
With the company also boasting a cash-rich balance sheet, forecasters expect dividends to keep rising too, resulting in that near-10% dividend yield for 2025. M&G’s Solvency II capital ratio was an excellent 203% as of December.
