The FTSE 100 has an abundance of quality high-yield dividend stocks. In fact, sometimes I find picking from such an embarrassment of riches difficult. Literally a couple of dozen Footsie stocks seem to have the potential to provide me with regular and reliable passive income.
But this Footsie stalwart stands out to me right now.
Boringly dependable
When it comes to dividends, I tend to believe that boring is better. I want an established company that operates in a sector that is going to be about forever. I want steady increases in its earnings over many years (preferably decades) to support the dividends. And I’d prefer to see a long track record of raising its payouts.
Should you invest £1,000 in AstraZeneca right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if AstraZeneca made the list?
For me, Legal & General (LSE: LGEN) ticks all these boxes. Established nearly 200 years ago, it specialises in pensions, asset management, and insurance. It has a long history of impressive cash generation and a strong balance sheet.
The group now has more than £1tn of assets under management. The dividend is well-supported, and hasn’t been cut for a long time. As an investor, I find all of this reassuring.
Plus, the stock also seems great value. It has a price-to-earnings (P/E) ratio of 7.3.
A grand a year in passive income
The stock carries a market-beating dividend yield of 7.5%, which is double the FTSE 100 average. One share is 253p, as I write. That means I’d need approximately 5,155 shares to generate £1,000 a year in passive income. That would cost me a little over £13,000.
Now, that’s quite a hefty chunk of money. Clearly not every investor is able to fork out that kind of cash. But that doesn’t mean I couldn’t buy the stock every week and gradually work my way towards that figure.
For example, if I bought 33 Legal & General shares a week, that would cost me £83.50 (as things stand). That’s obviously much more affordable. And if did that consistently every week for one year, I’d have 1,716 shares. They would pay me £332 annually.
After three years, I’d have 5,155 shares, which would pay me over £1,000 in annual passive income.
Of course, the share price won’t stay static over three years. It’ll likely go up some weeks, which means I’d get fewer shares for my money. And it’ll also likely go down some weeks, which means I’d get more shares and a higher yield.
But drip-feeding my money in every week would smooth out the ups and downs. It’s called pound cost averaging, and has actually been proven to be far less risky than if I were to lump in a single amount.
Risks
It goes without saying that no dividend is guaranteed forever and can be cut at any point. Plus, the UK is already in a recession. Legal & General’s tentacles stretch far and wide across the British economy. So nobody knows exactly how badly the company could be impacted by an economic downturn.
Nevertheless, the company’s strong track record and balance sheet give me confidence that its dividend is sustainable. That’s why it forms a part of my own income portfolio, and why I recently bought more shares. Whenever it pays me a dividend, I aim to reinvest it and generate further income.
