With inflation on the rise, passive income has arguably never been more important. A stream of dividend payments is my preferred method, which is why I’m invested in a handful of FTSE 100 companies.
Here, I want to highlight a pair of them. Why do I own them? And are they still worth considering buying today?
The highest blue-chip yield
Up first, we have Legal & General (LSE:LGEN). This is the insurance and asset management firm whose roots stretch back almost 200 years.
L&G, as it’s known, sports a dividend yield of 8.1%, which is the highest in the whole FTSE 100. This means £20,000 invested in the shares could generate £1,620 in passive income. Nice.
For the record, I haven’t got twenty grand in the insurer. But it will pay out the bulk of its annual dividend on Thursday (4 June), and I have enough shares so that I’ll get a few hundred quid.
But will I continue holding L&G? My main concern is that the yield might not be sustainable over the medium term.
For example, I read how analysts at Jefferies recently turned bearish, noting that L&G’s net surplus generation — which they regard as a proxy for free cash flow — is expected to stay flat at around £1.2bn through 2028.
If so, this means the payout will only just be covered. And this could see the dividend cut in future to improve capital flexibility — a move that would probably shock many investors, who have milked this dependable cash cow for a long time.
But there’s a reason why the yield is so high and the share price has basically gone nowhere for a decade. The dividend stock is clearly viewed as higher-risk by the market, so investors should bear this in mind.
What will I do? Well, that juicy yield has kept me loyal so far, and there’s an interim (smaller) dividend slated for September. Greedily, I’ll wait for that before making a decision.
UK property
The second FTSE 100 stock is Londonmetric Property (LSE:LMP). Now, this is a newer purchase for me, as I took advantage of a big share price decline (down 33% in less than four years).
LondonMetric is a real estate investment trust (REIT), which means it’s legally required to distribute at least 90% of taxable income back to shareholders as dividends. It’s a way of investing in property without the hassle of being a landlord.
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