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Every quarter, FTSE 100 actions are rearranged. Depending on their market capitalizations, companies retain their positions in the flagship London index or face relegation to the FTSE 250. This can be a useful indicator of which actions are working well and which are not.
I was looking at a company that moved up the FTSE 100 in January after a year out of the top division. Due to a healthy dividend yield of 3.94%, this stock could be a useful addition to my passive income portfolio.
I mean the specialty chemicals business. johnson matthey (LSE:JMAT). This is how you would invest in the company to reach £200 in annual dividend income.
Passive income dividends
As I write, Johnson Matthey’s share price is £19.56. That’s a slight 3% increase compared to where the shares were trading a year ago.
To target £200 a year in passive income, with today’s dividend yield, you would need to buy 260 shares. That would cost me just under £5,100, £5,085.60 to be exact.
With that investment, you would earn £200.37 in annual dividend income.
However, it is important to remember that dividends are not guaranteed. Until the pandemic, the company delivered an impressive 32 years of consecutive dividend increases. That put Johnson Matthey in the elite club of the Dividend Aristocrats.
However, in 2020, the company lowered its dividend, highlighting the risks involved in investing in passive income. That being said, the company continued to reward shareholders with distributions, albeit in the form of reduced payments.
The pandemic presented unique challenges, and I am optimistic that Johnson Matthey can come back to strength with another unbroken streak of dividend growth ahead.
mixed finance
The company produces emission catalysts for light and heavy vehicles. It also manufactures catalysts for the chemical industry and the oil and gas sector. As one of the world’s largest platinum refiners, Johnson Matthey uses platinum group metals for its industrial products.
There were signs of weakness in the company’s half-year results through September 30, 2022. Reported revenue fell 14% in the period, although excluding precious metals, this number actually rose 10%.
However, after-tax earnings fell 29% to £161m and underlying earnings per share also plunged from 117.1p to 88.2p. Dividends were flat and net debt increased by over £270m to £963m.
Those numbers may be disappointing reading, but Johnson Matthey is optimistic about the future. The company expects to generate at least £4bn in cash from its Clean Air division by 2031 and more than £200m in sales from its fledgling arm Hydrogen Technologies by 2025.
Combine this with around £1bn in cumulative capital expenditure over the next three years and £150m in annualized cost savings over the same time period, and the case for long-term share price growth holds. merit.
Should I buy this FTSE 100 stock?
I’m concerned about some numbers in Johnson Matthey’s recent half-year results. However, the positive future direction is encouraging.
I am waiting until the company’s full-year results are released on May 25 before making an investment.
I am hopeful that the business will show big improvements across a variety of metrics. If so, and I have extra cash available, I’ll buy Johnson Matthey stock for a solid stream of passive income.
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