This FTSE 100 stock yields over 5%, making it a great passive income opportunity!

Jabran Khan examines a FTSE 100 stock with defensive capabilities and a 6% yield that presents a passive income opportunity.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I look to FTSE 100 stocks for passive income opportunities to make my money work hard. Unfortunately, many firms have cut dividends since last year’s market crash. But there’s one stock, National Grid (LSE:NG), that I think is a great passive income opportunity for my portfolio. NG’s dividend yield is over 5%.

FTSE 100 opportunity

The average yield for a FTSE 100 company is 3%. Keep in mind that a higher yield isn’t always a good thing. A high dividend yield might indicate a business in distress. The yield could be high because the company’s shares have fallen in response to financial troubles, and the struggling company hasn’t cut its dividend yet.

I class NG as a defensive stock. It possesses an enviable position at the heart of the UK’s energy ecosystem. NG owns the electricity transmission network in England and Wales. Further to this, it owns and operates the high-pressure gas transmission system in Great Britain too.

NG’s current dividend policy aims to “increase dividend per share by at least RPI for the foreseeable future.” Not many FTSE 100 firms make such a bold and ambitious claim like this. I feel NG can achieve it, however.

As I write this, NG’s yield is a juicy 5.7%. Analysts forecast this dividend yield based on 49.5p per share, which is an increase from the 48.57p paid out in March 2020. Of course, forecasts are not guaranteed and can change based on new developments. But NG’s policy of raising its dividend per share by the retail price index (RPI) makes me believe that its dividend yield could be 6%-plus later this year. If this happens, I would class it as one of the best FTSE 100 dividends, and it will certainly be a top passive income stock in my eyes.

The NG share price is currently trading 16% lower than this time last year. Based on its defensive ability, the fact that it’s price has not reached or surpassed pre-crash levels is surprising. In fact, NG’s market crash low was 799p per share in March 2020. Nearly 11 months later and it has increased by less than 8%. This is where I feel an opportunity lies in picking up dirt cheap shares to help make a passive income.

Risk but potential for passive income

Utilities companies like NG aren’t completely without pitfalls and risks. NG is heavily regulated and there is always the threat of regulatory action. In addition to this, there is the threat of nationalisation in the background too. Furthermore, the power grid operator has to contend with huge capital expenditure bills. These can affect income, performance, and potentially even investment viability too.

Nevertheless, I believe NG presents an excellent opportunity for me to make a passive income. It possesses solid defensive capabilities. At current levels I believe it is cheap too.

Away from the FTSE 100, here is a FTSE AIM stock I really like right now too.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »