2020 reminded us that it’s always a good idea to have a second income stream. This can ensure that we are relatively cushioned if inflows from one stream either subside or stop entirely. It can even help us achieve financial freedom. Here are three FTSE 100 stocks I’d buy to achieve this goal.
#1. Severn Trent: generating steady passive income
Building up a stream of passive income is the most direct way of ensuring regular inflows without as much as lifting a finger. The good news is that many FTSE 100 shares have started paying dividends again. And there are others that will re-start them soon enough.
In other words, investors have plenty of choice when it comes to buying dividend stocks.
While it’s a good idea to diversify even among income stocks — especially considering that we are just coming out of a time when many FTSE 100 companies cancelled dividends — there’s one stock I’d like to buy in particular.
That is water and sewerage services provider Severn Trent, which has a dividend yield of 4.2%. As a utility, I like that it has predictable demand. Its financial performance is also robust. Both put together encourage me to believe that its dividends are more reliable than those of many other FTSE 100 stocks.
You might be put off by its high earnings ratio of almost 50 times. I would argue that it is a reasonable premium for a safe growth and income stock. I doubt that its share price will decline sustainably from here.
#2. JD Sports Fashion: the FTSE 100 king of performance
Besides earning a passive income, another way of gaining financial freedom is by investing in high-growth stocks.
One growth stock I’ve long liked is JD Sports Fashion. There are others too, but I want to make a special mention of JD today because it’s the biggest FTSE 100 gainer today after its robust update.
Even though 2020 has been a tough year for retailers, JD, with the catchphrase “Undisputed king of trainers”, expects healthy profits, buoyed by online demand and the growing popularity of athleisure products.
#3. IAG: dirt cheap, high potential
Finally, there’s also another kind of growth stock to consider — the kind that has suffered in the pandemic. Its prospects may not look as definite as those of JD, but I think its current prices are so low that there’s great potential for gains over time.
A god FTSE 100 example is the aviation company International Consolidated Airlines Group (IAG). Its share price has already nearly doubled once in 2020, between September and November, as the vaccine news came in.
With the UK in lockdown again, there’s undoubtedly more pain in store for the owner of British Airways. However, I am a believer in the potential for a huge bounce back in aviation over the next couple of years. I reckon the likes of IAG and easyJet could look like savvy investments in hindsight.
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Manika Premsingh owns shares of easyJet and JD Sports Fashion. 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.