With 2026 getting off to a shall we say interesting start, many are looking at FTSE 100 stocks as one of the safer places to park any spare cash. The high dividend yields on the index can provide safety in times of political or economic turbulence. And the defensive nature of these companies can help too.
These are some of the reasons why the FTSE 100 had an excellent year last year – the Footsie’s performance even outmatched the American S&P 500 – and why it might be the perfect place to start building passive income today.
To like
So what is there to like about the FTSE 100 for building passive income? For me, it boils down to two main things, which are as follows.
The first is the largest dividend yields of any index of any developed country. The average tends to hover around the 4% mark (though is a little lower at the moment). And there are many dividend-focused stocks with a great track record of offering more than that (more on that later).
The second is diversification into defensive industries. Sectors like mining, banking, or insurance are unglamorous, but they are a necessary part of the world economy. And because around 80% of revenues come from abroad, the stocks are less influenced by the UK economy or the status of the pound sterling too.
A negative to these two points is that the index has underperformed in recent years. Tech firms, especially in the US, have been the big winners of the last decade or two. Investors should be aware that this could just be tech’s day in the sun, or it could be the sign of long-term trend. Although I will point out that the Footsie is outperforming the S&P 500 again so far in 2026…
Long periods
What stocks should those looking to build passive income from London’s leading index consider? A stock like Phoenix Group (LSE: PHNX) could be one to keep in mind. The firm has paid out above 6% for the better part of a decade.
The firm’s operations in insurance and wealth management make for steady incomes. Over the next two years, for example, earnings are forecast to continue rising. A firm that can steadily increase dividends can create a powerful compound interest effect on passive income received.
Dividends are not guaranteed, of course. And that yield would be unusual to be paid over long periods too. One risk to the dividend might be fluctuating interest rates, which can change the value of Phoenix Group’s assets.
For an example target of passive income of £10,000, based on next year’s forecast yield of 7.78%, would require £128,515. A lower target of 5% – one with a better chance of being achieved over longer periods – would require £200,000.
