I’m looking to build a passive income to fund my retirement, and I reckon the UK’s FTSE 100 index offers some of the best stocks of all. Despite last year’s dividend cuts, the index should still yield around 3.8% this year, according to AJ Bell. That’s far more than you can hope to get on cash.
Dividend income isn’t guaranteed, so I’m targeting the best stocks and safest yields I can find. Here are three of my favourites.
Right now, I think the GlaxoSmithKline (LSE: GSK) dividend is hard to beat. That may seem odd, given that the payout has been held at 80p for several years. But, incredibly, this FTSE 100 stalwart now yields 6.55%. That’s the highest I can remember, while its valuation of 10.69 times earnings is the lowest.
Three of the best stocks for income
The Glaxo share price has performed horribly lately, falling 25% in the last year. It still trades slower than five years ago. The pandemic has hit sales of key shingles vaccine Shingrix, as people avoid seeing the doctor except in emergencies. Glaxo’s drugs pipeline sorely needs replenishing
Turning Glaxo around could take time. But you get income while you wait and this remains one of the best dividend stocks on the FTSE 100. I’d buy and hold for the long-term, to give it time to overcome short-term challenges.
Mining giant Anglo American (LSE: AAL) has a humdrum yield by comparison. at 3.16%. But that’s partly down to its blistering share price performance. The stock is up 34% over the last year, and 540% over five years. Despite this, it doesn’t look too overvalued, trading at 14.04 times earnings.
FTSE 100 dividends for my retirement
There’s growing talk of a commodity supercycle, as economies burst out of lockdown and we all enjoy a so-called ‘Roaring Twenties’.
It’s an exciting prospect, although nothing’s baked in. Mutant Covid could slow the recovery. Also, the mining sector is notably volatile. Companies over-extend themselves in the good times, and pay the price in the bad. However, if the economy does roar, I’d expect the Anglo American share price and yield to join in the fun.
As both stocks involve a bit of risk, I’m playing relatively safe with my third choice by picking water and waste management company United Utilities Group (LSE: PNN). This stock yields a highly attractive 4.61%. And the dividend should prove pretty stable, given that its earnings are set by its regulatory plan with water regulator Ofwat, which has four more years to run.
Trading at 14.56 times earnings, the United Utilities share price looks attractively valued. The pandemic has hit household and commercial water consumption, and could lead to a rise in customer bad debts. But, so far, the damage has been minor. That could change, of course, once government support programmes end.
But I still reckon this is one of the best stocks on the FTSE 100 for passive income.
These also tempt me.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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.