2 FTSE 100 stocks I’d buy for my ISA in November for passive income

Jonathan Smith reviews United Utilities and Schroders as good dividend-paying stocks for investors like him to create passive income right now.

| 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.

With the Bank of England cutting interest rates down to just 0.1% earlier this year, cash simply isn’t making you money. When you add in the current rate of inflation, cash sitting in your current account is actually losing you money. The value of it is being eroded by inflation over time. For investors, we don’t just want to make enough interest to cover the impact of inflation. We actually want to use the funds to generate a positive cash flow, via passive income. Earning 4%-7% a year in passive income from our cash funds is possible, by investing in FTSE 100 stocks that pay out dividends.

Northern utility

United Utilities Group (LSE: UU) provides water services to the North West of England. Headquartered in Warrington, the firm has a solid track record as a publicly listed firm for several decades. As utilities are not classified as a growth sector, UU uses a dividend as a tool to keep investors happy. At present, the dividend yield sits at 4.76%. 

This appears to be a sustainable dividend, for investors to pick up passive income for the future. In the latest trading update last month, the business said second-half revenues are likely to be down around 5% from the first half of the year. An increase in household consumption is slightly outweighed by reduced business consumption. This is logical, but it’s evident that the business is not anticipating a large fall in revenue or profit as a result of Covid-19.

As a result, I’d feel comfortable buying the stock for passive income into next year and beyond. With a yield of almost 5%, it’s high enough to give good returns, but not unsustainably high. Some stocks with a dividend yield above 10% could be under pressure of a dividend cut. For UU, around 5% is not a cause of concern for shareholders, I feel.

Money managers

Schroders (LSE: SDRC) is a large asset management company. It has an extended presence around the globe, with reported assets under management in 2019 of over £500bn. The share price was down as much as 36% earlier this year. It has rallied somewhat, but is still down on the year. This is one large factor that has bumped the dividend yield up to 6.2%.

The dividend yield is nowhere near as high as similar firms in the industry such as M&G or Standard Life Aberdeen. When such yields start to creep to 10% or higher it usually starts sounding warning bells in my mind. So I’d be happy in picking up passive income via the Schroders dividend as a safer play.

Half-year profits did dip by 10% as investors rushed out of funds, but the AUM figure has been recovering in recent months. Given that Schroders services various different segments from retail to institutional clients, the risk is well spread. Again, I feel that the dividend should be supported into 2021 and beyond unless we see another market crash similar to March.

Passive income via an ISA

The two above stocks are good examples of how sustainable passive income can be found right now in the FTSE 100. I’d also make sure that I buy the stocks within an ISA to enable me to benefit from receiving the dividends gross of tax. That way, not only are we beating inflation, but also generating a positive cash flow!

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.

jonathansmith1 has no position in any of the shares mentioned. 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.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »