Having liquid cash to invest at the moment is a huge benefit. Generating some additional income from FTSE 100 dividend stocks, premium bonds, or Cash ISA’s during a looming recession makes sense. It allows investors to make their money work harder during difficult times, often when it’s most needed. Generating income from investments is also a bonus when interest rates are so low.
So if you have £1,000 ready to go, where’s the best place to target? Cash ISA’s don’t carry a particularly high return, with investors being fortunate to get over 1%. Premium bonds don’t offer any guarantee of income, as payments are done on a lottery style prize draw.
For an income investor, it makes sense to look towards stocks. From there, I’d focus more towards established businesses. In most cases, such a company has grown to full capacity, and is paying out profits via dividends to investors. This is where you can find good value and pick up income usually on a semi-annual basis.
Vodafone (LSE: VOD) is a telecommunications giant with headquarters in the UK and global operations. It’s long been a stock which has divided investors opinions on whether to buy or not.
Stagnant share price growth for several years was followed by a downtrend starting in early 2018. From an average of around 230p, the share price now sits at 138p. The move lower coincided with scrapping dividend payments last year, due to heavy losses.
A month ago we received the trading results for the 2020 financial year-end, which showed a much better performance. Operating profit rebounded to over €4bn. In part, this helped the business confirm that it would pay a dividend for this year. The dividend yield sits at 5.7%, comfortably above the FTSE 100 average. Given the solid performance seen, along with high free cash flow, I’d look to buy Vodafone as a FTSE 100 dividend stock.
On the shopping list for dividends
A second firm I think could provide dividend opportunities is WM Morrison Supermarkets (LSE: MRW). Like Vodafone, the supermarket has committed to pay out a dividend based on the latest financial results. However, with the ex-dividend date already passed, new investors will be looking to the decision on a special dividend. The decision on whether to pay this out has been deferred for the moment.
I don’t see this as a huge negative, and would buy the share for income at a dividend yield of 3.6%. Even without the special dividend, regular dividends should continue to be paid. Performance in a defensive sector like supermarkets should not be severely damaged from the pandemic.
On top of the dividend income, you could also see a pick up in the share price if we see global tensions rise. Investors looking for safety could buy into the share price for protection.
So with £1,000, achieving dividend yields of 3% to 6% is possible via investing in the FTSE 100. This would not only beat your savings account, but also inflation, making it a smart move for intelligent investors!
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Jonathan Smith and The Motley Fool UK have 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.