In my ongoing search for a higher second income, I keep turning to FTSE 100 stocks as a great source of passive earnings.
Share dividends as a second income
Right now, I have several sources of unearned income, including share dividends and cash interest. And when I finally retire, I will need to rely on my second incomes to survive. Thus, here are two shares that I own for their powerful income generation.
This income stock offers a 9% yield
My wife and I bought shares in Legal & General Group (LSE: LGEN) for our family portfolio in July 2022. We paid 246.7p a share for our stake in this leading insurer and asset manager.
As I write, the L&G share price stands at 218.46p, valuing the group at £13.1bn. This leaves us nursing a paper loss of around 11.5% on our purchase price.
Over one year, L&G shares have lost 2.4% of their value, plus they are down 11.5% over five years. However, we bought this stock to boost our second income, rather than for capital gains.
Also, this FTSE 100 share looks far too cheap to me today. It trades on a multiple of 5.6 times earnings, for an earnings yield of 17.9%. This means that the dividend yield of 9% a year is covered twice by earnings.
Then again, L&G manages around £1.3trn of assets for 10m customers, so it is heavily exposed to financial markets. If stocks and bonds plunge again (as they did in 2022), then the company’s earnings could take a big hit.
However, I see this outcome as already priced into the shares today. Hence, I’m happy to hold my L&G stock for its long-term potential.
Dividend stock #2: a 7.5% income
Glencore (LSE: GLEN) is another Footsie share we own for powerful passive income. This Swiss multinational is one of the world’s leading miners and commodity traders.
Thanks to a strong rebound since the crash of March 2020, Glencore is one of the FTSE 100’s biggest firms today. At the current share price of 464.35p, this business is valued at £57.3bn — a Footsie heavyweight.
Of course, Glencore works in the dirty world of digging up and selling natural resources. Hence, its shares are often shunned by environmental, social, and corporate governance (ESG) investors. However, the copper, cobalt, zinc, and nickel that it produces are essential for the transition to a low-carbon economy.
We bought this stock in August at a cost of 435.1p a share. So far, we have made a paper gain of 6.7%, but hope the best is yet to come. Meanwhile, the shares are down 5.8% over one year, but have leapt 48.3% over five.
Glencore’s price-to-earnings ratio of 7.5 translates into a healthy earnings yield of 13.4%. And for my second income, this share offers a market-beating dividend yield of 7.5% a year, covered 1.8 times by earnings.
That said, future dividends are not guaranteed — and Glencore cut its payouts in 2015, 2016, and 2020, when commodity prices fell back.
Finally, generating a growing second income from shares is a tricky business. That’s why our income portfolio includes 15 different FTSE 100 stocks, plus five FTSE 250 shares. Only by spreading our money around can we reduce our reliance on particular companies, sectors, and countries!
