1 FTSE 100 stock to consider buying for long-term passive income

Stephen Wright says a FTSE 100 stock at a 52-week low could be a great choice for investors looking for long-term passive income to consider.

| 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.

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.

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.

Shares in companies that can increase their dividends over time can be great sources of passive income. Especially when they trade at unusually cheap prices. 

Created with Highcharts 11.4.3Associated British Foods Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

That’s the case with Associated British Foods (LSE:ABF) – the stock’s at a 52-week low, the dividend yield’s at a 10-year high, and the growth’s been impressively consistent. So should investors consider it?

The business(es)

Depending on how you look at it, Associated British Foods is either an impressively diversified firm – or a mix of businesses that don’t really make much sense together. It might be a bit of both. 

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

See the 6 stocks

The company has five divisions. These include sugar, agricultural feeds, and branded groceries, but the largest of these by some margin is Retail – which is value fashion and lifestyle group Primark. 

From an investment perspective, I’m much more positive about Primark than I am about any of the firm’s other units. I think the retail operation is where growth’s likely to come from.

My view with Associated British Foods is that investors should consider it when Primark by itself is worth the share price. And with the stock at a 52-week low, that time might be now.

Valuation

ABF currently has a market-cap of £13.7bn. On top of this, it has about £2bn more in net debt for investors thinking of buying the stock to consider in their calculations. 

Primark however, generated £1.1bn in operating income in 2024. This is just over half the company’s earnings and it might be enough to justify the entire market-cap by itself.

Based on this, the stock trades at an approximate price-to-earnings (P/E) multiple of 14 – including the firm’s debt. I don’t think that’s a lot for a business (Primark) with strong long-term prospects.

The retailer has a business model based on stores rather than e-commerce. This helps reduce the costs of online returns, which I see as a big advantage, but there are some risks to consider.

Risks

Primark’s latest results have been disappointing – and they demonstrate some of the challenges the business faces. Overall sales grew just 2% during the 16 weeks leading to 4 January. This was largely due to a challenging trading environment in the UK and Ireland, which accounts for around 45% of sales. Like-for-like sales fell 6% and the retailer also lost market share. 

That tells investors that growth is in no way guaranteed. But things were much more positive elsewhere – revenues grew 17% in the US and Primark still only has 29 stores across the Atlantic. 

I think that means there’s a lot of scope for expansion. And I expect this to provide a big boost to profits at Associated British Foods as a whole, especially when the short-term issues subside. 

A buying opportunity?

For me, the investment case here is all about Primark. And despite the short-term challenges, I see a margin of safety in the current share price.

I therefore think investors should consider the stock with its potential for both growth and passive income. Despite the challenges, I don’t see that the opportunity has ever been better.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods 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.

We think earning passive income has never been easier

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

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »