The FTSE 100’s market crash has shown signs of recovery in recent trading sessions. The index recorded one of its biggest one-day gains, as investors looked ahead to the prospect of an improving outlook regarding coronavirus.
However, past bear markets suggest there can be high volatility for some time after a market crash. This may cause paper losses for investors in the short run. But with the FTSE 100 offering high yields and recovery potential, now could be the right time to invest in a diverse range of stocks to make a passive income.
The FTSE 100’s recent decline means it now has a dividend yield of around 6%. That’s its highest ever level and highlights its income potential.
Of course, some of its members have already announced they will not be paying their dividends in the near term. Others are likely to follow, as the economic impact of the coronavirus outbreak becomes clearer.
However, income investors may be able to obtain FTSE 100 dividend stocks with highly favourable outlooks. In many cases, their dividends are highly affordable and their financial positions suggest a good chance they will overcome near-term economic challenges to deliver rising dividends in the coming years.
Buying a range of income stocks today could be a sound move for investors who wish to obtain a generous passive income in the long run.
Passive income opportunities
The FTSE 100’s high yields coincide with a period of lacklustre returns elsewhere for income investors. Returns on cash and bonds have been exceptionally low for many years, but are now set to worsen. Interest rate cuts to historic lows mean that their returns may lag inflation over the medium term.
Similarly, previous opportunities in the buy-to-let sector could becomes less attractive. Tax changes and more onerous mortgage requirements may make buy-to-let an increasingly difficult means of making a high passive income.
On a relative basis, the FTSE 100 seems to have a significant amount of income appeal at the present. This could increase as the economic impact of coronavirus subsides over the coming years and a host of FTSE 100 shares are able to post rising dividends that beat the pace of inflation.
Clearly, buying shares in the midst of a market crash is a risky move in the short run. The bottom of the stock market’s fall may not yet have been reached. But, over the long run, the track record of the FTSE 100 suggests a recovery is highly likely. Buying large-cap dividend shares today could be a means of generating an attractive passive income, as well as capital returns, in the coming years.
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Peter Stephens has no position in any of the shares mentioned. 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.