Earlier today, I saw a cartoon by Amy Hwang in the Financial Times that made me smile. It showed two people relaxing on sun loungers, with one remarking to the other, “I love working on my passive income”.
I get that vibe, because like this chilled-out couple, I prefer hardly working to working hard. And the way I do this is by collected a steady stream of income from share dividends.
Two FTSE 100 stocks for passive income
Since 30 December, the UK’s elite FTSE 100 index has risen by under 2.8%, while other major stock markets have soared. That’s why the Footsie is my #1 choice for generating extra income right now. Hence, here are two shares that I’d gladly buy today for future passive income.
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Dividend share #1: Vodafone
We bought Vodafone (LSE: VOD) shares for our family portfolio last December for 90.2p apiece. As I write, they stand at 76.72p, for a paper loss of 14.9%. But when share prices fall, dividend yields rise — all else being equal, that is.
At today’s lower share price, the telecoms giant’s stock offers a double-digit dividend yield of 10.1% a year. With such a high yield, new CEO Margherita Della Valle might decide to cut this payout to strengthen the firm’s balance sheet.
With the shares trading on a multiple of 7.7 times earnings and an earnings yield of 12.9%, they don’t look expensive to me. However, with the dividend covered less than 1.3 times by earnings, it looks shaky.
Nevertheless, if I had some cash to spare, I would gladly add to our Vodafone holding today. The shares are down 37.3% over one year and 57.4% over five years. Still, I’m hoping for a brighter future for this group’s battered shareholders!
Passive income stock #2: M&G
My second share for extra passive income is a very different animal to Vodafone. It is asset manager M&G (LSE: MNG), which launched Europe’s first mutual fund for private investors in 1931.
Over 92 years, M&G has become one of the UK’s leading investment groups, with over $366bn (£283bn) of assets under management at end-2022. The group manages various client assets, including equities, multi-asset, fixed income, real estate, and cash.
Last year was a tough one for M&G, because shares and bond prices both plunged. This left the group recording a loss in 2022. But financial markets have rebounded this year, pushing the group back into profit once more.
At their 52-week low on 29 September 2022, I could have bought M&G stock for 159.3p a share. As I write, the shares hover around 204.7p, up almost three-tenths (+28.5%) from this bottom. This values the group at £4.8bn — perhaps making it a tasty takeover target from one of its much larger rivals one day?
M&G shares have dipped 2.8% over one year and 9.1% over five years. These declines have boosted the current dividend yield to 9.6% a year, far ahead of the FTSE 100’s yearly cash yield of around 4.1%.
Of course, should financial markets go into meltdown again, then M&G’s revenues, profits, and cash flow will suffer — as will its shareholders. Nevertheless, I look forward to buying this stock soon for its powerful passive income!
