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Dividends are never, ever guaranteed. But when it comes to finding stocks with potential to generate attractive passive income, I wouldn't look any further than FTSE 100.
That's at least my investment strategy. And although it may seem quite boring, it doesn't worry me. I want the investment to be as simple as possible.
As such, I tend to target well-known names with stable business models and healthy cash flows. They must also pay a substantial dividend yield. With the payments I receive, I reinvest them in buying more shares of the companies I love. This is how I am building my wealth.
I could go find the next one NVIDIA Hoping I could get rich overnight. However, the stock market has proven that playing the long term is one of the best and most sustainable ways to reap its rewards.
That being said, here are two of the best Footsie stocks I own. I think investors should consider buying them today.
HSBC
HSBC's (LSE: HSBA) one of my favorite stocks. I first opened a position in February, when its share price fell 8% following the release of its full-year results. I saw a great buying opportunity.
Since then, the stock has seen a nice recovery. Like many of its Footsie counterparts, it has been gaining momentum this year, up 8.3%. But I think he has more to give. It appears undervalued and trades at just 7.6 times earnings.
I also saw the decline in its share price as an opportunity to earn a higher return. Today, it rewards shareholders with a 7.2% payout. It is covered twice by income and has been increasing steadily in recent years. Those are green flags.
I have doubts about the impact its exposure to Asia could have on its performance in the short term. Its heavy concentration in China is a cause for concern. Banks will also feel the squeeze on their margins due to falling interest rates.
But focusing on the long term, I am bullish on HSBC. The bank spent $7 billion last year in share buybacks, so there is a clear appetite to continue rewarding shareholders.
British American Tobacco
I also like British American Tobacco (LSE: BATS). Its share price is down 5.4% in the last 12 months, so clearly the broader market doesn't share my enthusiasm.
But that's the best time to buy, right? I understand the threats. Smoking is becoming increasingly unpopular. The company recently had to write down the value of its American brands, causing its stock price to drop.
But trading at 6.6 times earnings, its shares look like a bargain. Added to that, they pay a whopping 9.6% yield. Despite any challenges it may face, the company has forecast it will generate £40 billion in free cash flow over the next five years. This bodes well when it comes to paying out shareholders.
In its latest update, published on June 4, the company said it expects strong growth in the second half of the year, largely “conducted by the innovation phase in New Categories”.
I like the moves the company is making in this division, which sells non-combustible products. Last year, the unit's revenue rose 21% and it achieved profitability two years ahead of schedule.
