The majority of my portfolio consists of FTSE 100 stocks. I think it makes sense to target blue-chip companies with proven and stable business models.
What’s better is most Footsie stocks offer investors the opportunity to make powerful passive income through their meaty dividend yields. Here are two I really like the look of and would pick up if I had the cash.
HSBC
The first is international giant HSBC (LSE: HSBA). The stock’s made a cracking start to 2024, rising 12.8% year to date. Even so, it still looks cheap trading on just 7.7 times earnings and with a price-to-book ratio of 0.85.
HSBC yields 7%, which tops the Footsie average of 3.9%. Looking ahead, that’s forecast to rise to 7.9% by 2026.
Last year the business upped its total dividend by 91.8%. It paid out $0.61 per share compared to just $0.31 for 2022.
In its latest results, it announced an interim dividend of $0.10 as well as a special dividend of $0.21 following the sale of its Canadian unit.
Looking beyond its yield, I think there are plenty of other reasons to like HSBC shares. For one, its focus and heavy investment in Asia is a smart move, in my opinion.
The issue is that it comes with some volatility. HSBC has a strong concentration on China’s property market, which has taken a wobble recently.
But in the long run, I think HSBC’s involvement in the region should boost profits. With management remaining committed to returning 50% of earnings to shareholders via dividends, this should also hopefully see its yield rise.
Unilever
Next on the list is Unilever (LSE: ULVR). Like HSBC, it has started 2024 on the front foot, rising 9.5%.
At 3.5%, its yield is nowhere near HSBC’s. However, the risk with dividends is that they’re never guaranteed. Therefore, its track record of not cutting its payout for over 50 years is exceptional.
Like HSBC, there are other reasons I like Unilever aside from the passive income opportunity.
For example, Unilever’s a defensive stock. The products it sells are essential. That means regardless of the economic environment, there will always be a demand for what it sells.
Of course, the risk is that consumers opt for cheaper alternatives compared to the brands Unilever owns. Companies such as Aldi and Lidl have aggressively been stealing market share in recent years.
However, its Q1 results show that Unilever still has strong pricing power. For the quarter, underlying sales grew even with increasing prices.
For years, the business has struggled as some shareholders believed the company lacked focus and was too big. That’s been reflected in its sub-par share price performance.
But CEO Hein Schumacher is making solid strides as he continues to streamline and focus on Unilever’s core brands. We saw this in action earlier this year when the business announced it was splitting off its ice cream unit as it looks to “do fewer things better”.
Going forward, it’s moves like these that could help Unilever continue to go from strength to strength and keep paying out investors.
The post I think these FTSE 100 stocks are amazing investments for powerful passive income appeared first on The Motley Fool UK.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings and Unilever 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.
