While supermodels famously don’t get out of bed for less than a certain daily wage, many investors earn money while they sleep. That’s because they have passive income streams from dividend stocks. Here are two FTSE 100 dividend shares which currently pay me a yield of over 8% without having to lift a finger to earn it – or even be awake.
FTSE 100 dividend shares: Imperial Brands
The tobacco company Imperial Brands (LSE: IMB) announced its results yesterday. They included a full-year dividend increase of 1%, in line with my expectations. That is small and goes hardly no way to getting the dividend back to where it used to be before it was cut by a third last year.
However, to put things in perspective, the dividend yield is still 8.8%. That is far in excess of the average yield offered by FTSE 100 dividend shares. I also think that the cut last year, while painful, has made the dividend yield more sustainable.
One clear long-term risk to Imperial’s revenues and profits is a decline in cigarette smoking in many markets. It is trying to offset this by increasing market share and raising prices. I don’t think that is a long-term survival strategy, but it may buy time. The company’s results contained some cheering news about business performance. Revenue moved up 0.7% compared to the prior year, while the company’s operating profit increased by 15.2%. If business performance continues to improve, I expect the Imperial yield will survive and we should see modest dividend increases in future years.
Competitor with 8%+ yield: British American Tobacco
A second tobacco company I hold in my portfolio is British American Tobacco (LSE: BATS). The company is larger than Imperial and owns iconic brands including Lucky Strike.
It raised its dividend more modestly than Imperial over the past decade. The result is that it has not made a cut. Indeed, BATS has increased its dividend annually since before the turn of the century. The current yield stands at 8.4%. FTSE 100 dividend shares with a yield over 8% and dividend history like BATS are rare, which is one of the reasons I like the shares. However, dividend history is no guarantee of future dividends. One risk to BATS is the large size of its borrowings. With around £40bn of net debt on its balance sheet, any downturn in profitability could see money being used to fund interest payments rather than the dividend.
But I see the company as well-managed and also like its diverse portfolio of premium brands. That gives it pricing power, which should mean that like Imperial it can mitigate falling rates of smoking with price increases. It is a core holding in my portfolio and I have been taking advantage of the BATS share price this month to top up my position. Hopefully that will earn me more passive income while I sleep. FTSE 100 dividend shares which yield over 8% are rare beasts, so I am glad I own two of them.
