1 FTSE dividend stock I’d put 100% of my money into for passive income!

If I could invest in just one stock to generate a regular passive income stream, I’d choose this FTSE 100 Dividend Aristocrat.

| 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.

Diversification is the cornerstone of my passive income investment strategy. Since dividends aren’t guaranteed, I spread my stock market positions across a variety of companies and sectors.

Accordingly, I hope to secure a steady flow of dividend payouts even if some firms that I invest in encounter financial difficulties. Ultimately, going all in on a single stock is an extremely risky approach and one that’s too rich for my blood.

Nonetheless, it’s an interesting thought experiment. What if I could only pick one dividend share to buy? Which stock would I feel most comfortable putting all my cash into?

Should you invest £1,000 in The Honest Company, Inc. 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 The Honest Company, Inc. made the list?

See the 6 stocks

After serious deliberation, I settled on Europe’s largest defence contractor, BAE Systems (LSE:BA.).

Here’s why.

Dividend reliability

Offering just a 2.3% dividend yield, BAE shares might not be an obvious choice for passive income seekers. Indeed, the company’s yield is lower than the average 3.7% yield across FTSE 100 stocks.

But hear my logic out. If I had to concentrate my entire passive income portfolio in a solitary stock, I’d prioritise dividend stability over a high yield that might not be sustainable over the long term.

In that regard, the weapons manufacturer doesn’t disappoint. It’s a Dividend Aristocrat, boasting an unbroken 30-year streak of growing shareholder distributions.

Most recently, the firm hiked its full-year dividend for 2023 by 11% to 30p. In addition, BAE continues to boost shareholder returns via an ongoing £1.5bn share buyback programme.

Looking ahead, forecast dividend cover looks healthy at 2.1 times earnings. That’s above the two times threshold generally seen as indicating a wide margin of safety. Impressive stuff.

Defensive qualities

I also like the non-cyclical nature of the company’s operations. Many dividend shares rise and fall in accordance with macroeconomic cycles, but BAE’s fortunes are more closely linked to military expenditure by its government clients around the world.

This makes the stock particularly attractive currently, considering the UK economy entered a recession at the end of 2023.

Created with Highcharts 11.4.3BAE Systems PriceZoom1M3M6MYTD1Y5Y10YALL18 Apr 201918 Apr 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

Granted, some investors may have moral concerns about a business that specialises in manufacturing fighter planes, missiles, warships, and munitions.

That’s understandable. However, there’s little denying this sector’s booming at present due to elevated geopolitical risks and the tragic ongoing wars in Ukraine and the Middle East.

Perhaps then it’s unsurprising that the BAE share price has grown 157% over five years. Looking ahead, the firm’s future looks bright too.

Impressive recent contract wins, such as a £4bn order under the AUKUS defence pact for a new generation of nuclear submarines, lifted 2023’s order intake to a record £37.7bn. BAE’s order backlog also stands at an unprecedented high of £69.8bn.

Risks

Despite reasons for optimism, it’s worth noting the company’s forward price-to-earnings (P/E) ratio of 19.4 is higher than its historical average. This might indicate lower future returns.

Furthermore, BAE’s no stranger to controversy. The historic corruption scandal over the Al-Yamamah arms deal with Saudi Arabia springs to mind.

Plus, Indian authorities are currently investigating allegations of “criminal conspiracy” against BAE and Rolls-Royce relating to the procurement of Hawk 115 advanced jet trainers in 2005.

Nevertheless, I believe BAE Systems merits consideration for any investor’s passive income portfolio. It’s right at the top of my own list, but I’d diversify to mitigate the risks.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Charlie Carman has positions in BAE Systems and Rolls-Royce Plc. The Motley Fool UK has recommended BAE Systems and Rolls-Royce 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.

More on Investing Articles

Investing Articles

£10,000 invested in Greatland Gold shares 1 year ago is now worth

Greatland Gold shares have caught my eye in recent months, partially because of the trade volume, but also the recent…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Think the FTSE 100 has no good growth stocks? Think again…

The S&P 500 has a more impressive array of growth stocks than the FTSE 100. But investors who ignore the…

Read more »

Mature couple at the beach
Investing Articles

Here’s how a £100k SIPP could turn into a £1m+ SIPP in 30 years

Christopher Ruane sees a SIPP as an ideal vehicle for long-term investment. Here he explains how an investor could aim…

Read more »

Investing Articles

£2K in savings? Here’s how that could be used to start investing today

With a spare couple of thousands pounds, a stock market beginner could start investing. Our writer shares some thoughts to…

Read more »

Man smiling and working on laptop
Investing Articles

2 hot REITS to consider for a long-term second income!

A lump sum or regular investment in these real estate investment trusts (REITs) could help supercharge an investor's second income.

Read more »

Investing Articles

My favourite FTSE 100 stock has just doubled my money! What do I do?

Harvey Jones has reaped outsized rewards from private equity specialist 3i Group, the top-performing FTSE 100 stock over five years.…

Read more »

Young Caucasian girl showing and pointing up with fingers number three against yellow background
Investing Articles

3 rookie ISA mistakes to avoid

Seemingly small choices can have big impact on the long-term valuation of a Stocks and Shares ISA. This writer identifies…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

FTSE shares: 3 reasons I’m buying this February

Christopher Ruane reckons that now is as good a time as any for him to buy specific FTSE 100 shares.…

Read more »