Dividends are never, ever, guaranteed. But when it comes to finding stocks with the potential to build handsome passive income, I’d look no further than the FTSE 100.
That’s my investment strategy, at least. And while it may sound rather boring, I’m not fussed. I want to make investing as simple as possible.
As such, I tend to target household names with stable business models and healthy cash flows. They must also pay a meaty dividend yield. With the payments I receive, I reinvest them back into buying more shares of the companies I love. That’s how I’m building my wealth.
I could go searching for the next Nvidia in the hope I can get rich overnight. However, the stock market has proven that playing the long game is one of the best and most sustainable ways to reap its rewards.
With that, 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 favourite stocks. I first opened a position back in February when its share price slid 8% following the release of its full-year results. I saw a great buying opportunity.
Since then, the stock’s staged a nice recovery. Like many of its Footsie counterparts, it’s been gaining momentum this year, rising 8.3%. But I think it’s got more to give. It looks undervalued, trading on just 7.6 times earnings.
I also saw its share price dip as a chance to snag a bigger yield. Today, it rewards shareholders with a 7.2% payout. It’s covered two times by earnings and has been steadily rising over the last few years. Those are green flags.
I’m wary about the impact its exposure to Asia could have on its performance in the near term. Its heavy focus on China’s a worry. Banks are also set to feel the squeeze on their margins from falling interest rates.
But focusing on the long term, I’m bullish on HSBC. The bank laid out $7bn last year in share buybacks, so there’s a clear appetite to keep rewarding shareholders.
British American Tobacco
I also like British American Tobacco (LSE: BATS). Its share price is down 5.4% over the last 12 months, so clearly the wider market doesn’t share my eagerness.
But that’s the best time to buy, right? I understand the threats. Smoking’s becoming increasingly unpopular. Recently the company had to writedown the value of its US brands, which led to its share price sinking.
But trading on 6.6 times earnings, its shares look like a steal. Coupled with that, they pay a whopping 9.6% yield. Despite the challenges it may face, the business has forecast it’ll generate £40bn in free cash flow over the next five years. That bodes well when it comes to paying out to shareholders.
In its latest update, released on 4 June, the business said it expects strong growth in the second half of the year, largely “driven by the phasing of innovation in New Categories”.
I like the moves the business is making in this division, which sells non-combustible goods. Last year, revenues for the unit climbed 21% while it achieved profitability two years ahead of schedule.
