Investing money in FTSE 100 dividend shares could be a sound means of obtaining a generous and growing passive income. A number of large-cap shares offer relatively high yields that may grow over the coming years in a potential economic recovery.
Furthermore, they could offer less risk than other, smaller companies. Certainly, investing money in any dividend share does not guarantee any income or capital returns. However, the size and scale of large-cap shares could make them relatively appealing on a risk/reward basis from a passive income perspective.
Passive income potential from FTSE 100 dividend shares
Even after the recent stock market rally, a number of FTSE 100 dividend shares offer generous levels of passive income. In fact, it may be possible to build a portfolio of large-cap shares that provides a combined income return in excess of 4%. This could prove to be a relatively attractive level of income return in a low interest rate environment.
Furthermore, the track record of the index and of the economy suggest that a recovery is likely to take place over the long run. Clearly, this is not guaranteed. However, the stimulus programmes being followed and the vaccine rollout may mean that there is a gradual return to improving operating conditions. This may boost the profitability of many businesses, which could lead to rising payouts among FTSE 100 dividend shares over the coming years.
Risks versus rewards
It may be possible to obtain a higher passive income from outside of FTSE 100 dividend shares at the present time. For example, some smaller companies may have higher yields than their larger peers. However, larger companies may have a size and scale advantage that means their income returns are more robust. They may be less reliant on a small number of customers, for example, and that could make their income streams more visible in an uncertain economic environment.
FTSE 100 stocks may also have a more international weighting than their smaller peers. In fact, around two thirds of the index’s revenue is generated from outside the UK. This could make it a more resilient means of making a passive income, since its future prospects may be less tied to the performance of a specific region or economy.
Investing money in UK dividend shares
As ever, buying FTSE 100 dividend stocks means higher risks than some investments. There is no guarantee that any company will pay dividends in future – even if it has done in the past.
However, with a mix of high yields, dividend growth potential and potentially lower risks than other smaller shares, the FTSE 100 could be a sound destination for a £1,000 monthly investment. In time, it could offer an attractive level of passive income as a likely global economic recovery takes hold.
