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As the banking crisis continues, I am looking forward to taking advantage of it and accumulating high-yield assets. FTSE 100 stocks to generate a regular passive income.
The index is packed with the best dividend payers at best, so what makes today particularly attractive? It’s all about performance.
As stocks fall, returns rise
The yield is calculated by dividing the dividend per share by the share price. So if the stock price falls, I get more passive income.
As the crisis progresses, stocks are falling across the entire FTSE 100 and not just bank stocks. As a result, most now offer higher returns. Let’s take just one example, Legal and General Group. Last Friday it yielded 7.41%. Today it would get 8.54%.
However, L&G has nothing to do with the banking crisis. It’s not even a bank. The FTSE 100 is full of companies in a similar position. Let’s say I invested £10,000 in a tax-free Stocks and Shares ISA. I wouldn’t put it all in one stock, but would split it up among five different companies in five different sectors.
Please note that tax treatment depends on each client’s individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and obtaining professional advice before making any investment decisions.
Diversifying will reduce my risk if one of the companies fails, or if a particular industry struggles over the next year. Banking, for example.
If I were to start by investing £2,000 of my £10,000 in L&G, its return of 8.54% would give me an income of £170.80 per year.
I like a home builder, because its shares have sold as investors flee a potential home price decline. I suspect the sale may have been overdone. Barratt developments yields 8.48% today. If I invest £2,000, I would earn an income of £169.60 per year.
Then I could diversify into the mining sector, buying shares in Anglo-American, which currently yields 6.76%. My share of £2,000 would generate income of £135.20.
I would reinvest my dividends at the beginning
Tobacco Manufacturer Addition british american tobacco, which yields 7.34%, would generate another £146.80. Buyout of troubled telecommunications giant BT group with my final share of £2,000 he would give me £105 courtesy of his 5.25% return.
As a general rule, higher return equals higher risk. I would have to explore all the company accounts of my stock picks in greater detail before parting with my money.
All five are available at very cheap valuations, which is both enticing and a warning sign. Stock prices do not fall for no reason. If a company doesn’t generate the cash flows needed to keep up with shareholder payments, it doesn’t matter how much they return on the first day. Dividends can be cut at any time.
My £10,000 would generate a total income of £727.48 in the first year. That’s £60.61 a month. With a fair wind, this will be an increase in income, as most FTSE 100 companies aim to increase their dividends over time.
I will reinvest all my dividends today and take them as passive income when I retire. Hopefully the income will be much higher by then.
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