Passive income is all about, well, income. And that’s what FTSE 100 stocks that pay good dividends do so well.
Right now, there aren’t many that I like the look of more than NatWest Group (LSE: NWG). A 7% dividend yield should beat the pants off any cash-based savings that I can think of.
The yield is so high partly because the share price is weak at the moment.
Super cheap shares?
Forecasts value NatWest shares on a price-to-earnings (P/E) ratio that’s only about half the current FTSE 100 average. And that’s when the FTSE 100 is also down compared to its long-term valuation.
Buy why? Well, it has to be down in large part due to the economy, inflation, and interest rates. And after the big crash of 2008, a lot of folk will surely be wondering if banks have another crisis up their sleeves.
I mean, hands up all those who think banks are the most ethical companies we have? I doubt I’d see all that many of you reaching for the sky right now.
Bank crash
Speaking of that old bank crash, NatWest is the one that used to be called Royal Bank of Scotland. And it was famous due to the taxpayer bailout it needed to stay afloat.
The government still owns more than 30% of NatWest. And it looks like it’s set to sell off at least some of that before too long.
And that’s surely keeping the share price down too. Flooding the stock market with a huge number of a FTSE 100 firm’s shares would seem sure to push the price down.
Cheap banks
But, I don’t think that applies just to NatWest. If a government sells off a load of any bank stock, I reckon it’s going to keep the whole sector down.
So with these economic risks, and the risk of share prices falling, doesn’t that make buying bank stocks a bad idea right now?
I say no. At least, not if we want the maximum dividend income we can get. And those of us seeking passive income are in it for the long term.
We surely want to buy as many dividend shares as cheaply as possible, and reinvest each year’s income in new shares. That’s my top way to build up a nice pot for retirement, and then start taking the income.
Cheap sector
NatWest isn’t the only bank stock that I see as cheap now. No, Lloyds Banking Group offers a forward dividend yield of around 5.6%, with Barclays on 4.5%. Oh, and HSBC Holdings has an 8% forecast yield. It does come with risk from the Chinese economy, mind.
I wouldn’t put too much of my cash into banks. I’d want some diversification… I’m quite sure we haven’t yet seen the world’s last banking crisis.
But by the time I retire, I really do hope to be getting the biggest portion of my stock market income from banks like NatWest.
