Investing an empty £20k ISA in these 2 FTSE stocks could give me a £2k passive income overnight

The FTSE 100 is packed full of world-class dividend stocks that could give me a high and rising passive income. Here are two of my favourites.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m using my Stocks and Shares ISA allowance to generate a tax-free passive income to top up my state pension when I retire.

To achieve this, I’m building a portfolio of high-yielding FTSE 100 shares, which offer some of the most generous dividends in the world. The two highest yielders in my portfolio, wealth manager M&G and insurer Phoenix Group Holdings (LSE: PHNX), currently give me an ultra-high second income with yields of 10.14% and 9.01% a year respectively.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Should you invest £1,000 in M&G 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 M&G made the list?

See the 6 stocks

Better still, when the Bank of England finally cuts interest rates – which could happen as early as May – their share prices should recover as economic sentiment and stock markets rebound. So I might just bag some capital growth as well.

Look at those dividends

Double-digit yields can prove vulnerable. Some 18 months ago, I bought housebuilder Persimmon and miner Rio Tinto, which were yielding 20% and 10% respectively. Within weeks, both payouts had been slashed.

Yet after reading their company reports, I think both M&G and Phoenix have a good chance of maintaining their super-sized shareholder rewards.

Since listing in 2019, M&G has returned more than £2.5bn to shareholders. In half-yearly results published on 20 September last year, the board confirmed that its “policy of delivering stable or growing dividends to our shareholders remains unchanged”. It then hiked its interim ordinary dividend by 5%.

M&G boasts financial strength after generating first-half operating capital of £505m, up from £433m the year before. Its shareholder Solvency II coverage ratio is strong at 199%. Markets reckon the yield will creep up to 9.23% in 2024. 

The M&G share price climbed 10.95% in the last year, giving me a 12-month total return of almost 20%. Neither dividends nor capital growth is guaranteed and if shares crash M&G will duly follow. Since I plan to hold for the long-term, I can look past short-term volatility.

Created with Highcharts 11.4.3M&g Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Phoenix is my most recent purchase, bought on 30 January at £5.11 a share. With the stock at £5.05 today, I’m down 1.66%, but these are very early days.

Just brilliant yields

As with M&G, I plan to hold Phoenix for years and ideally decades, to give my dividends and any capital growth time to compound and grow.

The Phoenix share price has crashed 21.42% over the last 12 months, and looks dirt-cheap at today’s trading at 6.1 time earnings. I’d buy more if I had the cash, even though it has hardly responded to this week’s rally. I may have to be even more patient with this one.

Created with Highcharts 11.4.3Phoenix Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

While I wait for the recovery, I’ll reinvest my blockbuster second income. Again, it looks solid, with Phoenix hitting its £1.5bn new business long-term cash target two years early. Given recent poor share price performance, the dividend is the main reason for holding the stock.

Combined, these two uber-yielders yield 9.58%. If I split a full £20k ISA allowance between them, I’d hope to get income of £1,915. That’s almost £2k in year one and if I’m right and their dividends are sustainable, that should steadily rise over the years. Who knows, I might get some share price growth too.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has positions in M&g Plc, Persimmon Plc, and Phoenix Group Plc. The Motley Fool UK has recommended M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our best passive income stock ideas

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?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »