Here’s a 5-stock FTSE 100 portfolio that could generate £800 a month in passive income
The FTSE 100‘s packed with compelling income stocks to choose from, but sometimes it’s best to keep things simple. This is particularly true for beginner investors, as too many options can lead to bad choices.
I’ve identified five of the best UK dividend stocks and calculated what kind of returns they could deliver. To maximise returns, UK residents can invest up to £20k a year via a Stocks and Shares ISA and benefit from a tax break on the gains.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
My five top picks
Rather than simply choose the highest-yielding stocks on the FTSE 100, I’ve taken some time to identify each company’s long-term prospects. A high yield today means nothing if it gets cut tomorrow! I’ve also diversified them over various industries to avoid losses in a single sector.
Here are my choices:
| Stock | Industry | Dividend yield |
|---|---|---|
| Legal & General | Life Insurance | 9% |
| British American Tobacco | Tobacco | 7.6% |
| Schroders (LSE: SDR) | Investment Banking | 7% |
| London Metric Property | Real Estate | 6.4% |
| National Grid | Utilities | 5% |
Together, these five stocks provide an average yield of exactly 7%. With £137,142 invested in such a portfolio, the dividends would equate to £9,600 a year — or £800 a month.
That’s a lot of money, but it can be built over time. For example, with an initial lump sum of £10,000 and monthly contributions of £200, it could take around 18-20 years (with dividends reinvested).
Why these stocks
As mentioned, I picked the above stocks for their high yields and diversified sectors. But that’s not all — they also have long track records of honouring shareholder payments.
Take the asset manager Schroders, for example. Dating back to 1804, it’s a well-established family business with over 6,000 employees in 38 locations worldwide. The company manages funds in equities, fixed income, multi-asset solutions and private assets, including real estate. It also provides wealth management services via its subsidiaries Cazenove Capital and Benchmark Capital.
Price action and dividends
Schroders flies under the radar to an extent, likely due to lacklustre price action. Although it’s up 160% over the past decade, the past five years have been tough, wiping 26.5% off the stock price.
Where it lacks in notable price appreciation, it makes up for with dividends. Even though some years have not seen an increase, the final year dividend has still grown at an average annual rate of almost 10%. That’s a lot higher than most! Since 2005, they’ve grown from 3.7p per share to 21.5p — with no cuts or reductions. Today, its yield sits at 6.8%.
Risks and strengths
Risk-wise, Schroders is sensitive to market-related factors like investor sentiment, regulatory changes and fluctuating stock prices. The rise of digital and AI-enhanced investment platforms also threatens to steal its customers and reduce its market share.
But with an expansive level of diversification and £700bn in assets under management (AUM), its credentials are solid. It’s shown resilience during market downturns and continues to grow and make notable acquisitions, such as Greencoat Renewables and Benchmark Capital.
With a long and established history and strong dedication to shareholder returns, I believe Schroders is a stock worth considering as part of a passive income portfolio.
The post Here’s a 5-stock FTSE 100 portfolio that could generate £800 a month in passive income appeared first on The Motley Fool UK.
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Mark Hartley has positions in British American Tobacco P.l.c., Legal & General Group Plc, and National Grid Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., LondonMetric Property Plc, National Grid Plc, and Schroders 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.
