Earning a passive income is an ambition shared by investors around the world. After all, what’s not to like about the idea of making money without lifting a finger?
More importantly, earning a passive income doesn’t require a large stack of cash upfront. Putting aside manageable amounts of money each day is enough to start building a serious income stream from an investment portfolio.
But what if I could only pick one FTSE 100 stock to get the ball rolling on my journey towards achieving a lucrative passive income? Well, I wouldn’t hesitate pick this one for my portfolio.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
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A company with an illustrious history
Multinational financial services company Legal & General (LSE: LGEN) was established in 1836 with the goal of safeguarding peoples’ financial futures around the world.
Today, the business helps over 10m people with savings, retirement, and life insurance.
The company enjoys a strong market position in the UK financial services industry with a comprehensive product portfolio that serves to insulate business risk.
A strong financial performance
Legal & General’s recent full-year results impressed me.
At the beginning of last month, the group reported full-year operating profit of £2.5bn, up 12%. On top of this, cash generation of £1.9bn was up 14%.
The only division to see profit fall was Investment Management, where market moves impacted the value of investments.
This highlights an ongoing risk for the group that I’ll be keeping an eye on. After all, any future turbulence in financial markets will do no favours for the portfolio.
Moreover, if banking sector problems persist and put pressure on the global economy, businesses like Legal & General could see falling profits.
Nonetheless, alongside the results the board proposed a full-year dividend of 19.37p, up 5%.
A bumper dividend yield
As a result, Legal & General’s dividend yield currently stands at around 8%. You’ll be hard pressed to find a higher yield than that across the entire FTSE index.
Nevertheless, buying shares in companies purely because of a high yield isn’t a wise strategy. It’s important to me that a company’s dividend is sustainable if I’m to build a stable passive income.
As such, what makes Legal & General shares an even more attractive investment in my eyes is that the bumper dividend looks well covered at current levels.
To illustrate, the group’s cash and capital generation remain strong, up 14% and 10%, respectively.
Undervalued shares
Combined with an attractive yield, I think Legal & General shares could also be undervalued.
The group’s shares currently trade at a price-to-earnings (P/E) ratio of around 6.2. To put this figure into context, the FTSE 100 average is around double that.
Even considering the fact that low-growth businesses traditionally trade at a discount, in my eyes, the group’s shares could still present significant value.
So, to top it all off, I wouldn’t rule out some share price growth on top of juicy dividend payouts.
If I had the cash to spare, I’d happily buy Legal & General shares for my portfolio to kickstart my journey towards building a passive income.
