The FTSE 100 index is a veritable gold mine when it comes to hunting for dividend stocks. And there’s one high-yield share in particular I’d be comfortable buying today for the passive income it churns out.
Going cheap
Financial services provider Legal & General (LSE: LGEN) might present as an odd pick. I’d go as far as to say that the whole of last year was a damp squib for most UK-listed banks, wealth managers and insurers. It’s no surprise that high inflation and galloping interest rates would conspire to reduce the ability of ordinary folk to save for their futures.
On a positive note, this has left L&G shares looking cheap. This is both relative to peers and the stock market as a whole. Based on analyst projections, I can buy this stock for a little less than 10 times forecast earnings.
Should you invest £1,000 in Smiths Group Plc 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 Smiths Group Plc made the list?
This becomes even more tempting when its delicious dividends are considered.
Monster yield
L&G shares are down to yield a monster 8.5% in 2024. Only a handful of firms in the UK’s top tier offer more and the FTSE 100 index itself yields ‘just’ 3.8%.
It’s also worth mentioning that L&G has a fantastic record when it comes to hiking its payouts nearly every year.
If I were to invest £14,125 today – giving me 5,673 shares — I’d generate £1,200 a year or £100 a month in passive income.
Now, this is just an example — I appreciate that’s an awful lot of money to stump up. I’d still receive a good amount of passive income with a smaller stake.
But the key point is that I’d potentially be getting far more bang for my buck by investing here than a bog standard fund that tracks the market. This is assuming I was happy to take on more risk in the process.
Speaking of which…
But is it safe?
As expected with any stock, there are potential downsides to owning a slice of L&G. For me, the biggest concern is that 2023’s payout is likely to be barely covered by profit. This implies there’s a possibility of a future cut unless things improve.
Still, analysts are pretty optimistic that the passive income stream won’t be impacted. The consensus is that L&G’s dividend cover will increase this year based on earnings bouncing back to form.
Poor performer
Another thing worth noting is that the shares haven’t delivered anything in the way of capital gains for a while. If I’d invested at the start of 2018, my stake would be worth roughly the same today (ignoring the impact of dividends).
That might be a bitter pill to swallow when one has other FTSE 100 stocks that have delivered stellar gains over the same period while also paying dividends (albeit smaller).
I’d buy for the passive income
On the flip side, I’m quietly confident L&G will deliver better returns from here. An aging population should act as a big growth driver in the decades ahead. Separately, it’s worth noting that this company has easily outperformed the FTSE 100 over the very, very long term.
However, I’d buy the stock today if my primary objective was generating passive income — perhaps to supplement a pension.
Any profits on top of this would be a bonus.
