Making a passive income with FTSE 100 shares is one of the easiest ways to build wealth while sleeping. These established and mature enterprises have historically proven to be quite stable. And with revenues being generated largely from international markets, most aren’t bogged down by the weak economic growth in Britain like many other UK shares.
The index currently offers a historically modest payout of 3.3%. But some of its constituents are being far more generous. For example, Legal & General (LSE:LGEN) shares pay almost three times as much with a dividend yield of 9.1%. And according to an analyst at Barclays, the shares are close to 40% undervalued as well!
A bullish income opportunity
As per the latest share price forecasts, the analysts at Barclays believe that Legal & General shares should be worth closer to 320p. That’s about 36% higher than where the stock is currently trading. And digging deeper, this optimistic outlook isn’t entirely far-fetched.
The company has a leading position within the UK pensions and bulk annuities market. That’s a key advantage over its peers when capitalising on the ageing population of Britain and rising demand for retirement solutions.
What’s more, its annuity portfolios generate predictable and stable long-term cash flows. That’s terrific news for dividend investors seeking a sustainable passive income. And it explains how the financial institution has been able to maintain shareholder payouts for over 25 years, without making a single cut since 2009.
Combining this with growth opportunities in the group’s investment management division, Barclays believes the markets are significantly undervaluing this business. So, does that make it a no-brainer buy?
What do the sceptics say?
Barclays isn’t the only bull backing Legal & General. However, overall, opinions seem to be mixed, with the average consensus forecast suggesting that the stock is already fairly valued. That’s because there’s a big question mark over the group’s exposure to UK gilts.
Legal & General uses these government bonds to generate a predictable income stream at low risk. However, with rising UK government debt levels and fiscal pressure on the national budget, there’s growing concern among investors about whether the British government can keep up in the long run.
The result? Increasing volatility in gilt yields. And for Legal & General use of leveraged funds and liability-driven investing strategies to hedge risk could backfire, resulting in substantial losses that could have a severe impact on its balance sheet, as well as introducing liquidity risk.
Time to buy?
Barclays did highlight the UK gilt exposure in its bullish forecast. But it seems to be confident that Legal & General’s long track record of navigating through market volatility makes it more resilient than most other investors believe.
There’s certainly an exciting income opportunity here if Barclays is right. And given the high yield, it’s definitely a stock worth investigating further. However, there’s also no denying that lower-risk passive income opportunities exist within the FTSE 100 today. And personally, those look more tempting for my portfolio.
