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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Nearly 53% of the £7.6bn portfolio is in urban logistics (think distribution centres for online shopping), where tenants include Amazon, Primark, and Next. E-commerce is booming but there’s a shortage of available land, creating an attractive dynamic.
Meanwhile, rent from the entertainment and leisure sector, making up 20.2%, comes from the likes of Travelodge and Merlin (owner of Alton Towers and Thorpe Park). Contractual increases apply to 98% of rents here.
The reason the stock has lost a third of its value is due to the higher interest rate environment. This has obviously made borrowing more expensive. If rates stay elevated due to high inflation, then this REIT will likely underperform.
For me though, the 6.6% dividend yield on offer makes this a risk worth taking. A combination of high-yield income and turnaround potential makes LondonMetric worth considering at 190p.
Should you invest £5,000 in LondonMetric Property Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if LondonMetric Property Plc made the list?
Ben McPoland owns shares of Legal & General and Londonmetric Property.
