It is quite straightforward to generate a passive income from stocks. Today there are plenty of FTSE 100 blue-chip companies that offer dividend yields of more than 5%.
Here are three prime examples that could be worth buying today.
Anglo American
Anglo American (LSE: AAL) is one of the world’s largest mining groups. Global economic uncertainty seems to have contributed to the company’s lacklustre share price performance over the past few years. Still, there could be a buying opportunity here for long-term investors.
Anglo currently trades on a forward price-to-earnings (P/E) ratio of 9.9, which suggests that it offers a wide margin of safety. Furthermore, it has a dividend yield of 4%, covered 2.5 times by earnings per share. This suggests that the dividend yield is sustainable and could grow substantially in the years ahead. The company has the headroom to more than double its distribution to investors.
Of course, as a mining concern, Anglo’s fortunes are tied to those of the economy. However, the company’s management signalled its confidence in the group’s outlook last year when it announced a $1bn share buyback. This suggests that for investors with a long-term time horizon, Anglo could be a great income and growth investment.
International Consolidated Airlines
International Consolidated Airlines (LSE: IAG) has also seen its share price dogged by uncertainty recently.
Rising fuel prices, a pilots’ strike, IT issues, and customer service problems have all hit investor confidence. However, the owner of the British Airways brand has continued to see rising demand for its services.
Total group traffic, as measured in ‘revenue passenger kilometres’, increased by 4.9% during November 2019 versus the same period in 2018.
As such, I think the stock has appeal for investors with long time horizons. It has a dividend yield of 4.3%, which is covered 3.3 times by earnings per share, once again suggesting that investors can look forward to growing dividends going forward.
Alongside this attractive dividend, IAG trades at a forward P/E of 6.7, which seems to suggest that the stock offers of a wide margin of safety. With passenger numbers continuing to grow, despite the company’s problems, now could be a great time to snap up this income bargain.
J Sainsbury
Shares in J Sainsbury (LSE: SBRY) also appear to have been held back by investor uncertainty recently. Political uncertainty has hurt consumer spending, which has weighed on the share prices of consumer-focused stocks.
Alongside this, Sainsbury’s is also facing disruption in its sector. The rise of the German discounters Aldi and Lidl, have nibbled away at the company’s market share and earnings have taken a hit.
Nevertheless, growth should return this year. Analysts have pencilled in a net profit of £462m for 2020, up from £186m for 2019. As such, this could be an excellent opportunity for long-term investors who are willing to look past Sainsbury’s near-term troubles.
The stock supports a dividend yield of 4.6%, which is covered 1.9 times by earnings per share. It is also dealing at a forward P/E of 11.7, suggesting a margin of safety at current levels.
