For anyone scanning the FTSE 100 for investments that can deliver passive income, companies such as BP (LSE: BP) and Rio Tinto (LSE: RIO) may catch their eye.
Both companies currently offer dividend yields above 5%, which is well above the Footsie average of around 3.5% and better than many other UK stocks.
But the question remains: are these two stocks genuinely worth considering, or are the juicy yields masking deeper risks?
Background
Global oil and gas giant BP currently offers a dividend yield of around 5.3% as I write late on 17 November.
The company remains a core member of the Footsie with a market cap of over £70bn and benefits from both a diversified fuel and energy offering, as well as its global scale.
Rio Tinto is a global leader in metals and mining that also has a rich history of cash generation and solid payouts to investors. The company also has a dividend yield of around 5.3%, which has been underpinned by strong demand for key commodities like iron ore and copper.
The mining stock has climbed 12% higher so far in 2025 as I write, while BP shares are up 14.6% in the same period.
Key risks
Both companies have consistently paid out handsomely to investors. However, both energy and the metals and mining sectors are notoriously cyclical. Earnings are high when the economy is booming but can fall sharply if signs of economic weakness start to appear.
I see a few key risks for both stocks. One of the big risks for BP is its reliance on oil and gas prices. These are notoriously volatile and a sharp decline could hit the company’s profits, and therefore dividend stability.
The other factor in the back of my mind is mounting pressure for the clean energy transition with regulatory impacts being a potential future hurdle.
For Rio Tinto, I think the risks lie in its dependence on metals prices and exposure to environmental and regulatory hurdles that could affect long-term growth. On the plus side, I do think critical minerals’ role in the energy transition could be a potential benefit.
My Verdict
For investors looking for Footsie stocks with historically solid payouts to help them build a passive income, I think Rio Tinto and BP are both worth considering.
It’s true that they’re both cyclical stocks but I think that’s reflected in the strong yields and current valuations. Both companies are global leaders in their respective fields, which leaves them well-placed to adapt to trends and any potential changes in regulations.
Given the potential role of metals in the energy transition, I think I would have Rio Tinto as a slight preference between the two at the moment. That said, I think diversification is still the key for long-term returns and I feel diversification across both is worth thinking about.
