There are several ways to make a passive income. But in my opinion, investing in FTSE 100 and FTSE 250 dividend shares can be one of the best ways to do this.
These businesses typically have proven and sustainable business models, along with robust balance sheets. Such qualities are conducive to regular (and often growing) dividends, and in many cases dividend yields that blow most other stocks (in the UK and overseas) out of the water.
With 350 companies to choose from between these indexes, it can be tough to choose which ones to buy today. However, WPP (LSE:WPP) and Bakkavor Group (LSE:BAKK) are two big-yielding dividend stocks that have caught my eye.
As you can see from the table below, their dividend yields for the current year sail past the average of both indexes.
| Forward dividend yield | |
|---|---|
| WPP | 5.3% |
| Bakkavor Group | 6.6% |
| FTSE 100 | 3.7% |
| FTSE 250 | 3.4% |
Dividends can never be guaranteed. But if broker forecasts prove correct, a £20,000 investment distributed equally across these shares could provide a £1,200 second income this year.
Here’s why I think they’re top dividend stocks to consider today.
Advertising ace
WPP is the world’s largest advertising company but it has suffered more recently as economic weakness has hammered advertising revenues. It’s hoped that conditions will improve as interest rates fall later this year. But the scale of any rate cuts in the US and UK remains the subject of much speculation.
Yet despite this uncertainty, the FTSE 100 firm is tipped to continue paying a large (albeit reduced) dividend. This is thanks to the company’s robust balance sheet: its adjusted net debt to EBITDA ratio stood at a healthy 1.8 times as of December.
I’m confident that WPP will be able to get back to growing dividends once current weakness in its markets passes. I’m especially encouraged by the huge investment the company is making to digitalise its operations, which includes a growing focus on artificial intelligence (AI).
Dividend cover of 2.3 times provides WPP’s dividend forecasts for this year with added strength.
Fabulous foodie
Fresh food manufacturer Bakkavor continues to rebound following the end of Covid-19 lockdowns. During 2023, like-for-like sales rose an impressive 5.3% as prices increased along with volumes in China. This pushed adjusted operating profit 5.5% higher.
As with WPP, earnings at this company are sensitive to conditions in the broader economy. On top of this, a rise in ingredient costs can have a significant impact on profits.
But on balance, I believe the long-term future of this FTSE 250 share looks extremely bright. With people living increasingly busy lives, demand for the salads, pizzas, desserts, and other pre-prepared meals are likely to grow in popularity.
Fortune Business Insights analysts, for instance, think this market will grow at an annualised rate of 7.02% through to 2032.
Bakkavor’s has a strong balance sheet to help it capitalise on this opportunity, with leverage of just 1.5 times. This should also help it to continue paying market-beating dividends.
