I’m hoping to generate a passive income from my portfolio in retirement, and I reckon FTSE 100 dividend stocks are the best shares to achieve that.
I’m not relying on the State Pension to fund my retirement. That only pays £175.18 a week, which adds up to just £9,109 a year. I plan to supplement that by generating a passive income from a diversified portfolio of dividend-paying stocks, mostly from the FTSE 100.
The pandemic has been hard on dividend stocks, as two-thirds of UK companies cut or suspended payouts totalling £39.5bn last year, according to Link Group. Despite that, the best shares on the FTSE 100 will still provide generous income this year, as companies like Sainsbury’s and Ferguson restore their dividends. AJ Bell reckons the FTSE 100 will yield 3.8% this year. Of course, like all forecasts, this could change based on future developments and is not something to rely on.
I’m buying FTSE 100 stocks for income
But I’m happy with that, given the pandemic. Especially when I compare it to the 0.25% I’m getting on cash. The best shares can yield 20 or 30 times that piffling sum.
There are loads of top dividend stocks out there right now. Pharmaceutical companies AstraZeneca and GlaxoSmithKline yield 2.78% and 6.23% respectively. Mining Giants BHP Group and Rio Tinto yield 4.32% and 4.95%. Financial services companies Phoenix Group Holdings and Standard Life Aberdeen yield 6.68% and 6.83% respectively.
Everywhere I look on the index, I see household name stocks rewarding shareholders with attractive dividends. Legal & General Group pays an income of 6.84% a year, while Vodafone Group yields 5.8%.
I haven’t even mentioned utility stocks, which I think are some of the best shares to buy for reliable income, including National Grid (5.57%), Pennon Group (4.68%), and United Utilities Group (4.67%).
Before Covid-19 struck, the banking, energy, and mining sector offered some of the best dividend shares of all. If vaccines liberate us from lockdown, they could do so again. Especially banks like Barclays, HSBC Holdings, and Lloyds Banking Group.
Some of the best shares around
It is important to remember that, unlike cash, dividend income is not guaranteed. Companies can cut payouts at any time, as we saw last year. Naturally, my capital is at risk as well. If stock markets fall, so will the value of my portfolio.
Before buying any of these stocks, I will check fundamentals, such as how well the dividend is covered by earnings.
I will further reduce my risk by investing in a spread of stocks, and holding them for the long term. By which I mean, 20 or 30 years, at least. That should give the market time to recover from any correction.
There is another reason why I reckon FTSE 100 stocks are the best shares to buy for long-term passive income. The index is still down more than 1,000 points after last year’s crash, and full of buying opportunities.
The years ahead may be bumpy, as the full cost of the pandemic makes itself felt. Some FTSE 100 sectors may struggle to recover, such as travel and leisure. Despite this, I reckon FTSE 100 stocks are among the best shares to buy, for my retirement.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, GlaxoSmithKline, HSBC Holdings, Lloyds Banking Group, and Pennon Group. 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.