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How I’d obtain a passive income with these 2 FTSE 100 dividend shares

Obtaining a passive income may seem to be challenging at the present time. After all, bond yields are low, while savings accounts and Cash ISAs generally offer 1.5% returns at best. Furthermore, property investing has become less attractive due in part to tax changes.

However, the FTSE 100 could offer a range of shares that deliver impressive passive income levels over the long run. Here are two prime examples which may be worth buying today, with their valuations suggesting that they offer capital growth potential over the coming years.


The outlook for Shell’s (LSE: RDSB) financial performance is relatively uncertain at the present time. In the current year, for example, it is forecast to post a fall in net profit of 15%, although this is due to be followed by a growth rate of 23% in the next financial year. Over the next couple of years, volatility in the oil price could mean that its financial performance differs significantly from its guidance.

However, with the stock having a dividend yield of 6.3% from a payout that is due to be covered 1.3 times by net profit in the current year, its income investing prospects appear to be bright.

In addition, investors appear to have factored in the uncertain outlook for the wider oil and gas sector. Shell’s price-to-earnings (P/E) ratio of 12.6 suggests that the stock offers a margin of safety – especially at a time when it is expected to deliver improving free cash flow which could be used to further reward its shareholders through a higher dividend payout.

British American Tobacco

Another FTSE 100 share that faces an uncertain future is British American Tobacco (LSE: BATS). Not only does the company have to contend with a continued decline in worldwide cigarette volumes, there are also regulatory risks facing next-generation products such as e-cigarettes. In the US, for example, there is the prospect of bans in certain regions, which could disrupt their growth prospects during what is proving to be a period of intense change for the industry.

Although British American Tobacco may suffer to some degree from an uncertain operating environment, it remains on course to build revenue from reduced-risk products over the next few years. This could support its current dividend yield of 7%, while it may also offer dividend growth prospects over the medium term.

While British American Tobacco may now offer less robust prospects than it did in the past, its passive income potential remains high. In the next financial year it is expected to produce dividend growth of over 7%. Since its dividend payout is covered 1.5 times by net profit, it appears to offer a relatively robust income outlook. As such, despite weak investor sentiment towards the business and the wider sector, now could be the right time to buy a slice of the stock.

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Peter Stephens owns shares of British American Tobacco and Royal Dutch Shell B. The Motley Fool UK has no position in any of the shares mentioned. 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.