Investing in FTSE 100 shares is a tried-and-tested strategy for generating a consistent passive income stream. The UK’s blue-chip index represents the largest companies listed on the London Stock Exchange, spanning various sectors. This includes industries such as finance, energy and healthcare.
What’s more, a handful of these companies have a proven track record of stability and resilience. This is essential for investors looking to build a reliable long-term income stream.
Today, I’m taking a closer look at two of them. And if I had any cash sitting on the sidelines, I’d snap up some shares in both. By holding for the long term, I could potentially transform a small initial sum into substantial wealth over time.
A utility stock with growth opportunities
National Grid (LSE:NG.) is one of the world’s largest publicly listed utilities. Its focus is on the transmission and distribution of electricity and gas, which means the company plays a critical role in connecting millions of people to the energy they need.
The group has placed itself right at the heart of the electric revolution. To illustrate, massive investment has been going into its asset base to drive the energy transition forward. In return for investing billions to maintain and upgrade its infrastructure, regulators in the UK and US allow National Grid to earn a decent profit. Moreover, there’s even potential to earn more if it exceeds targets.
However, being a monopoly in need of regulation is a mixed blessing. After all, it leaves the group’s fortunes largely in the hands of regulators such as Ofgem. Consequently, regulators essentially get the final say when it comes to profits. In my view, this represents the biggest drawback when it comes to investing in National Grid.
Nonetheless, the company boasts an attractive yield of 5.6% and aims to grow dividends per share in line with the Consumer Prices Index including owner occupiers’ housing costs (CPIH). As such, I think it ticks all the right boxes in relation to my search for high-quality stocks I could buy today to start building a reliable second-income stream.
A world-leading asset manager
For 186 years, Legal & General (LSE:LGEN) has provided financial services to customers across the UK. On the back of a successful track record, the company is now a global provider of retirement solutions to corporates and individuals.
Recent performance has been solid too, with the group well on track to meet its targets over the period of 2020-24. Most notably, this includes growing dividends at 5% a year and capital generation of £8-£9bn. While ambitious, the group’s outstanding solvency II ratio (a core measure of capitalisation) is more than sufficient to ensure that a whopping yield of 8.8% is well supported.
That said, dividends are never guaranteed. Several factors can influence a company’s decision to distribute dividends, and economic conditions, financial performance and management decisions all play a role. For example, unexpected economic downturns often impact a company’s ability to maintain shareholder payouts.
All in all, though, the future looks bright in my eyes. Each one of Legal & General’s four businesses is innovating and expanding globally, adding new products and solutions that should help facilitate the achievement of strategic goals.
