Here’s a simple 5-stock FTSE 100 income portfolio with an 8.1% yield
It’s never been easier to build a high-quality dividend portfolio. Right now, there are loads of FTSE 100 shares offering passive income opportunities.
Here, I’m going to lay out a five-stock portfolio that yields 8.1%. This means £20k invested equally across these picks in a Stocks and Shares ISA could bag me around £1,628 a year in tax-free passive income.
Sounds good to me. Let’s dive straight in.
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The portfolio
Below, I’ve listed three stocks from my own income portfolio and two that I’d consider if I were starting from scratch. The reason I don’t hold M&G and GSK is because I already own other shares in each respective sector (financial services and healthcare), and I don’t want to risk unbalancing my portfolio.
| Industry | Forward yield | Annual income from £4k | |
| M&G | Asset management | 10.5% | £420 |
| Legal & General | Insurance | 9.9% | £396 |
| British American Tobacco | Tobacco | 9.0% | £360 |
| HSBC | Banking | 6.7% | £268 |
| GSK | Pharmaceuticals | 4.6% | £184 |
| £1,628 |
As we can see, the forward-looking yields vary quite a bit, but they add up to a very attractive 8.1% yield. That would give me annual income of about £1,628 — far higher than just sitting in cash.
Some things to bear in mind
Now, it’s important to remember that these are just forecast yields. We won’t know for certain until the boards of the companies actually declare what they plan to pay shareholders next year (if anything at all).
Plus, each firm has its own individual risks. HSBC and Legal & General both have massive investment portfolios, so are also exposed to the vagaries of market movements. Earnings can be volatile.
M&G’s asset management division continues to deliver strong investment performance for its clients. As of 30 June, 66% of its mutual funds ranked in the top two performance quartiles over five years.
Yet with the S&P 500 up 35% in just one year, more clients might pull their money out and opt for a straightforward passive investing strategy. That’s always a risk for M&G.
Meanwhile, GSK is a vaccine maker at a time when Donald Trump has just won the US election. Reports say anti-vaccine advocate Robert F Kennedy Jr may potentially get a say on which jabs get approved. So that adds a bit of uncertainty.
Still a cash cow
The main risk with British American Tobacco (LSE: BATS) is more straightforward to grasp. Fewer people are smoking in the West, while vaping products are also coming under greater regulatory scrutiny.
Yet according to a 2021 paper published in The Lancet, there’ll be more than 1bn smokers globally by 2050. This projection factors in population growth and ageing, as well a decline in the overall smoking population. So cigarettes aren’t expected to disappear overnight.
Indeed, over the next five years, British American Tobacco still expects to generate approximately £40bn in free cash flow. If so, that should be enough to keep paying very attractive dividends.
The stock trades for a bargain-basement 7.3 times forecast earnings, while offering that meaty 9% forward yield.
A strong foundation
I reckon these five shares could provide a rock-solid foundation for a dividend portfolio. But I wouldn’t sleep well if I only had this many in my portfolio. I’d want at least 10-15 due to the risk of dividend cuts.
As mentioned though, the UK market is packed with income stocks of all shapes and sizes. There are investment ideas available from various sources, including here at The Motley Fool.
The post Here’s a simple 5-stock FTSE 100 income portfolio with an 8.1% yield appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
More reading
- How much would I need to invest in income shares to earn £300 a month?
- With yields over 8.8%, which of the FTSE 100’s top 5 passive income stocks do I think is the best?
- Here’s a simple 5-stock dividend income portfolio with a 7.5% yield
- 3 shares I’d consider for a Lifetime ISA
- £8,000 in savings? Here’s how I’d aim for £2,300 a month in passive income
Ben McPoland has positions in British American Tobacco P.l.c., HSBC Holdings, and Legal & General Group Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., GSK, HSBC Holdings, and M&g 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.
