I’d buy 10 shares a week of this FTSE 100 stock to target a £1,000 annual passive income
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Proudly owning shares in confirmed blue-chip corporations is one confirmed option to generate passive earnings. No surprise so many individuals (together with me) personal FTSE 100 shares hoping to obtain dividends from them lengthy into the long run!
That isn’t assured. For an organization to pay a dividend, it wants to have the ability to afford it and in addition resolve it desires to make use of spare money to reward shareholders somewhat than, for instance, spend money on progress.
However when the method works, it might work very properly. I maintain my portfolio diversified throughout a variety of various corporations. However right here I illustrate how, by shopping for 10 shares every week of 1 such FTSE 100 firm, I might intention to construct a £1,000 (and hopefully rising) passive earnings over time.
Concentrate on free money flows
Somewhat than beginning by in search of a enterprise that already pays huge dividends, my focus is on the long run. Even a FTSE 100 firm can slash its dividend – certainly, Vodafone introduced plans yesterday (15 March) to do precisely that in 2025.
What are the traits of a blue-chip firm that makes it appear more likely to keep or improve its dividend?
On the finish of the day, paying out spare cash to shareholders requires sufficient free money flows to fund that.
Whereas traders generally focus solely on earnings, such earnings (or losses) can embrace non-cash gadgets. In the case of dividends, I pay extra consideration to free money movement as an organization wants chilly, laborious money to maintain paying out dividends.
Going to the supply
However what permits an organization to generate such free money movement?
It must take additional cash in than goes out the door, finally. So I search for a enterprise with a sizeable buyer base that appears set to maintain shopping for in future. That may rely upon an organization having a aggressive edge over rivals, so I search for corporations with one thing that units them aside.
For example, think about insurer Phoenix (LSE: PHNX).
The well-established monetary providers firm operates in a market with resilient long-term demand that I anticipate to remain excessive. The enterprise has a big long-term shopper base, and powerful manufacturers akin to Customary Life and SunLife.
That units the stage for sturdy free money flows. The present dividend yield is 10.3%.
Can that proceed? One threat I see is unsure monetary markets main shoppers to withdraw funds, hurting each revenues and earnings for Phoenix.
From a long-term perspective although, I like this FTSE 100 firm’s combine of companies, its confirmed capacity to handle funds and the massive buyer base.
Aiming for £1,000
Final 12 months, every Phoenix share earned 50.8p in dividends.
The interim dividend this 12 months grew by 5% and I hope the full-year payout will do the identical. However even utilizing final 12 months’s full-year dividend per share, shopping for 10 shares would earn me over £5 in annual dividends.
So, if I purchased 10 shares every week for beneath 4 years, I might hopefully earn £1,000 in dividends yearly kind this FTSE 100 share alone.
The present Phoenix share value is round £5.07. So, for now not less than, I might purchase 10 shares for beneath £51.