I’m buying cheap FTSE 100 stocks to boost my passive income!

Young brown woman delighted with what she sees on her screen

I love buying stocks to generate passive income.

Share investing is a proven way to make life-changing returns. Annual returns for a long-term UK investor sit between 8% and 10%. While I’m aware that purchasing stocks can yield lower rewards or investors might even lose money, that average figure is one that’s transformed thousands of Britons into stock market millionaires.

I also like buying stocks to make a second income because it doesn’t require large amounts of upfront cash. And what’s more, thanks to intense competition, fees charged by brokers are falling rapidly. This gives investors like me even better bang for their buck.

Buying dividend stocks

I personally target dividend-paying shares to generate a healthy passive income stream. The regular dividend payments they shell out can help me with my everyday cost of living. Or I can reinvest them and use the miracle of compounding to hit my retirement target quicker.

The extreme share price volatility we’ve witnessed in 2022 makes now a particularly great time to buy dividend stocks too. This is because dividend yields across the London Stock Exchange have shot through the roof.

Right now the average yield for FTSE 100 shares sits at 3.7%. This is around half a percentage point higher than before stock markets corrected earlier this year.

Some FTSE 100 favourites

It’s important to remember that yield is based solely on the size of dividends brokers are expecting. And many payout forecasts look extremely fragile as corporate earnings and balance sheets come under pressure.

But plenty of rock-solid FTSE 100 stocks look in great shape to meet current City estimates. Many offer yields that beat the index average as well. Some of these top dividend shares include:

  • Rio Tinto (10.4% forward dividend yield)
  • DS Smith (5.7% forward dividend yield)
  • Persimmon (13% forward dividend yield)
  • Barratt Developments (7.6% dividend yield)

A passive income booster

You may wonder why I selected these dividend stocks in particular. I picked them because they’re all shares I’ve bought myself to supercharge my passive income.

Take DS Smith. Earnings here are in short-term danger as the economy cools and the demand outlook for its packaging products worsens. Profits could also take a whack as raw material costs rise.

But I believe profits could rise strongly over a longer time horizon. And by extension, I’m expecting the company to deliver healthy passive income that will grow over the years.

The e-commerce boom means more and more of its boxes will be needed to ship products. Its drive to produce more eco-friendly solutions should also pay off as companies seek to reduce their carbon footprints.

Life-changing income

As 2022 has shown, stock investing is rarely plain sailing. Markets can soar and they can also fall sharply. But over the long term — say a decade or more — owning shares can provide life-changing income.

I believe the stocks I own will considerably boost my wealth. And I plan to continue buying dividend stocks to help set me up for life.

The post I’m buying cheap FTSE 100 stocks to boost my passive income! appeared first on The Motley Fool UK.

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Royston Wild has positions in Barratt Developments, DS Smith, Persimmon, and Rio Tinto. The Motley Fool UK has recommended DS Smith. 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.