Building a passive income to top up my State Pension in retirement is the work of decades. Patience is the ultimate virtue.
I’m targeting this by building a balanced portfolio of mostly FTSE 100 shares, with an emphasis on those paying the highest dividends. A high yield isn’t everything though. The income needs to be sustainable.
I believe the following five stocks can give me both, and merit their place in my Self-Invested Personal Pension (SIPP). Although there are no guarantees.
Top stocks
I had high hopes for insurer Legal & General Group (LSE: LGEN) last year. I bought its shares in April, July and August last year at an average price of 226p. Today, they trade at 231.7p, a disappointing increase of just 2.52%.
Over 12 months, the L&G share price is up just 3.84%. Over five years, it’s down 14.46%. I think the market’s been unduly harsh on the stock (and the insurance sector generally). That’s why I’m hanging on.
This allowed me to pick up Legal & General’s shares at a relatively low valuation and grab myself a super-sized yield. Today’s trailing yield is 8.77% and I’ve already received two payouts, lifting my total return to 11.8%. That’s beats any savings account, and these are early days.
We could get the first interest rate cut as soon as September. If we do, I’d expect high-yield FTSE 100 dividend stocks to reap the rewards. It’ll make their income look even juicier compared to the yields from cash and bonds, which will fall.
Those rate cuts may take longer than I’d like, which is a big risk for the investment case. But I hope to hold my favourite five FTSE 100 dividend shares for years or, with luck, decades. Of course, I’ll monitor performance, and may sell if the fundamentals deteriorate.
My dividend heroes
I’m reducing risk by targeting solid blue-chips like housebuilder Taylor Wimpey. I’m already sitting on a total return of more than 33%, after less than a year. The stock’s expected to benefit from Labour’s ambitious building plans. Over 12 months, it’s up 49.52%, excluding dividends. The trailing yield is 6.31%.
I haven’t done so well out of pharmaceutical giant GSK. It’s up 13.47% over 12 months. However, I bought the stock in March and June, and I’m down around 10% as US litigation fears worry investors. Trading at 9.66 times earnings and yielding 3.88%, GSK looks even better value today. I may buy more.
I hold two more high-yielding financial services stocks – wealth manager M&G and insurance conglomerate Phoenix Group Holdings. Neither stock will shoot the lights out, but their fantastic dividends should compensate. Today, M&G has a trailing yield of 9.54% while Phoenix pays 9.79%. My research suggests both look sustainable, but we’ll see.
These five stocks give me an average yield of 7.66%. That’s a brilliant rate of passive income. I’m hoping it will rise over time. With luck, I’ll get plenty of share price growth on top.
The post 5 FTSE shares I own for passive income in my SIPP appeared first on The Motley Fool UK.
Should you buy Legal & General now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
3 top FTSE 100 value shares I’d buy before August!
Here’s how investing £83 a week in FTSE 100 shares could make me rich
2 FTSE value stocks with dividend yields higher than 6% that investors should consider buying
Here’s why I want to buy more Legal & General shares this month
£9,000 in savings? Here’s how I’d try to turn that into £916 a month of passive income!
Harvey Jones has positions in GSK, Legal & General Group Plc, M&g Plc, Phoenix Group Plc, and Taylor Wimpey Plc. The Motley Fool UK has recommended GSK and M&g 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.
