Here’s how I’ve targeted a HUGE passive income with FTSE 100 shares

The FTSE 100 is home to scores of brilliant stocks for dividend investors to savour. Here’s how I’m looking to build a passive income with them.

| 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.

Investors have plenty of ways to aim for a large second income. But I believe the best way to supplement my earnings with extra cash is by buying FTSE 100 shares.

Broadly speaking, Footsie-quoted shares tend to:

• Be mature, market-leading businesses, whose steady cash flows enable regular and reliable dividends.

Should you invest £1,000 in Aston Martin 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 Aston Martin made the list?

See the 6 stocks

• Have operations in multiple regions, which in turn spreads risk across markets and provides more consistent revenues and cash flows.

• Possess robust balance sheets, which can help them pay a decent and stable dividend even during economic downturns.

• Focus on offering large and growing dividends to attract investors.

A £4,440 passive income

As I say, this is the broad rule when it comes to investing in the FTSE 100. But dividend cuts can still happen that can unexpectedly whack investors’ passive income and cause share prices to slump.

This has been the case with both National Grid and Vodafone in 2024.

But today there are still many rock-solid income shares to choose from. Legal & General (LSE:LGEN) is one of my favourites from the index.

If City forecasts are accurate, the company would provide me with a £4,440 passive income between 2024 and 2026. That’s based on a £15,000 lump sum investment I made at the start of the year.

Dividend hero

In my opinion, Legal & General has one of the best dividend records on the Footsie.

Dividends have risen every year (excluding 2020) since the Great Financial Crisis. And dividend yields have smashed those of almost every other share on the index in that time.

This is thanks in part to the firm’s highly resilient business model. Its presence in multiple geographies and sub-sectors (like insurance, asset management, and pensions) provides healthy and reliable cash flows.

Such impressive dividend growth also reflects the company’s enduring capital strength. Today, its Solvency II capital ratio sits at 223% as of June, roughly unchanged from a year earlier.

This gives Legal & General room to invest for profits growth, while also continuing to reward shareholders with large and growing dividends.

10%+ dividend yield

YearPredicted dividend per shareDividend yield
202421.32p9.6%
202521.83p9.9%
202622.36p10.1%

As the table shows, City analysts expect dividends to keep rising through the next few years at least. I’m confident too, that — despite the threat posed by intense competition in its markets — it will keep growing cash rewards over the long term.

This will be underpinned by rising demand for wealth and retirement products as the global population ages.

I actually invested £15,000 in Legal & General shares at the start of 2024. So I’m expecting those £4,440 worth of dividends to come my way over the next few years.

However, I’ve also bought several other FTSE 100 stocks with strong records of dividend growth and/or market-beating yields. These include Aviva, Ashtead Group, Coca-Cola HBC, and Rio Tinto.

I’m confident this diversified approach will help me make an index-beating passive income for years to come.

Passive income stocks: our picks

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

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.

Royston Wild has positions in Ashtead Group Plc, Aviva Plc, Coca-Cola Hbc Ag, Legal & General Group Plc, and Rio Tinto Group. The Motley Fool UK has recommended Ashtead Group Plc, National Grid Plc, and Vodafone Group Public. 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p 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 8.5%, 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

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »